4. Evidentiary Hearing

At hearing, Timothy J. Flynn, vice president and general manager of Mesa Crest, testified that sale of the utility to a larger operator will facilitate needed capital improvements. These improvements include recoating of the five steel reservoirs, replacement of aging booster pumps and some mains, and installation of a new interconnection with La Canada Irrigation District for a secondary source of water. Cost of the work is estimated at about $700,000. Flynn stated that the current owners (his parents) are having difficulty obtaining financing for this work, and that Cal-Mich has agreed to accomplish this.

Mesa Crest pointed out, correctly, that the capital improvement work is not part of this application for transfer of control. Capital improvements will be addressed in a general rate case that Mesa Crest anticipates will be filed in the near future. If and when a general rate case is filed, both ratepayers and the Commission will have an opportunity to address the application and its effect on rates.

Formal protests to this application were filed by La Canada Flintridge Country Club, which is Mesa Crest's largest customers, and by a residential customer, Charles K. Thomas. At hearing, Gilbert Dreyfuss, the country club's president, asserted that the formation of a special district to operate the utility or transfer of the utility to an existing public agency would better serve the needs of ratepayers. In particular, he argued, the needed capital improvements could be financed by a public agency with less effect on rates. On cross-examination, he acknowledged that efforts to form a special district or to transfer the utility to a public agency can continue regardless of the transfer of ownership since these agencies can proceed at any time through a purchase offer or through eminent domain.

Kristine Blom, president of a homeowners' association served by Mesa Crest, testified that the Foothill Municipal Water District has expressed an interest in acquiring the utility. She acknowledged that there has been no formal approach by the district and that the district does not now have the capability to conduct retail water operations.