X. Comments on Proposed Decision

On November 19, 2001, the principal hearing officer's proposed decision was filed with the Commission and served on the parties in accordance with Section 311(d) of the Public Utilities Code and Rule 77.1 of the Commission's Rules of Practice and Procedure. Comments were filed by Union Pacific on January 9, 2002. We discuss those comments below.

A. Estoppel

Union Pacific contends that the Commission is estopped from asserting jurisdiction over Union Pacific in relation to its operation of the Keene Water System. Union Pacific states that the Commission is estopped because the Commission previously held in D.97-09-014 that the Keene Water System is not a public utility system and nothing has changed since that holding was made.

The standard for estoppel is as follows:

Generally speaking, four elements must be present in order to apply the doctrine of equitable estoppel: (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended: (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.

(Driscoll v. City of Los Angeles (1967) 67 Cal.2d 297, 305.) In the case of estoppel against a government agency the person asserting estoppel must also "demonstrate that the injury to his personal interest if the government is not estopped exceeds the injury to the public interest if the government is estopped." (Stewart v. City of Pismo Beach (1995) 35 Cal.App.4^th 1600, 1607.)

In this instance, Union Pacific fails to meet the second prong for establishing estoppel. Union Pacific appears to suggest that the Commission is estopped by D.97-09-014 from exercising jurisdiction over Union Pacific with respect to its operation of Keene Water System. Union Pacific places far too much weight on D.97-09-014. In C.89-06-051, the docket was inactive for approximately six years.⁷ The specific conduct or action the Commission took in D.97-09-014 was to order dismissal of C.89-06-051 without prejudice for lack of prosecution. We find that a Commission order dismissing a case without prejudice for lack of prosecution fails to establish conduct upon which the Commission can be estopped from exercising jurisdiction over Union Pacific concerning its operation of the Keene Water system.

Even assuming the Commission were estopped from relying on Union Pacific's conduct prior to 1991 in exercising jurisdiction over Union Pacific. Such an estoppel would not immunize Union Pacific from being found a water utility for conduct occurring subsequent to 1991. In fact, the OII acknowledged D.97-09-014 and stated that a review of D.97-09-014 and D.75769 (a prior complaint) reveals that neither complaint against SP was resolved on the merits. The OII stated:

Both cases were truncated and the Commission never reached the question of SP's public utility status. Because the Commission's 1997 decision (D.97-09-014) does not reveal the changes in SP's water service activities that occurred during the 1990's.

Thus, the OII stated that activities in the 1990's may have relevance on the status of the railroad as a public utility with respect to its operation of the water system.

B. Customers

Union Pacific asserts that the PD fails to specify which customers should be served. Union Pacific contends that all customers are not similarly situated and that all are not entitled to water service. In support of its position, Union Pacific cites an agreement with Steve Cummings not to supply water and also D.97-09-014 for the proposition that Stonybrook is estopped from establishing a right to receive water.

As discussed above, D.97-09-014 dismissed a complaint without prejudice for lack of prosecution. It should not provide a basis for terminating service to Stonybrook. In this proceeding, we did not single out any existing customer for termination of service in the event the Keene Water System was found to be a water utility. Union Pacific should continue to provide water to all existing customers as of the date of the initiation of this OII so long as the water consumed is paid for.

C. Abandonment of Service

Union Pacific asserts that the PD fails to address Union Pacific's proposed abandonment of service. In its comments Union Pacific cites the following testimony to support its request for abandonment:

"As the Commission has recognized, the railroad has long desired to terminate its involvement with the water system, and it should be permitted to abandon the system." (Exhibit 3 at page 21.)

In this proceeding the Commission stated it would consider the issue of abandonment and further provided the parties an opportunity to address the issue of abandonment of service in the event Union Pacific was found to be a water utility with respect to its operation of the Keene Water System. However, Union Pacific did not present sufficient evidence for the Commission to consider this issue. The one sentence of testimony identified by Union Pacific clearly expresses its desire to abandon service but does not provide a basis for allowing an abandonment of service. The PD should be clarified to state that Union Pacific provided insufficient testimony to justify abandonment of the Keene Water System.

D. Dedication

Union Pacific asserts that the evidence does not support the PD's finding of implied dedication. Union Pacific suggests that the railroad's application requesting a franchise from Kern County to build a water pipeline is insufficient evidence to conclude that a dedication has occurred.

Union Pacific contends that the PD too narrowly interprets Gov. Code Section 26001. Union Pacific argues that a franchise may be granted for "all lawful purposes," not uses limited to the "public use" as the PD suggests. Thus, Union Pacific argues that a franchise may be granted for purposes other than "public use." Consequently, Union Pacific explains that the railroad simply applied for the "privilege" of placing a new water pipeline along the county roadway in order to address the concerns of DHS over the condition of the existing water main.

Although, Union Pacific offers a broader statutory interpretation of Gov. Code Section 26001, it offers no specific examples of franchises being granted which do not involve "public use" or discuss "privileges." However, we need not resolve that issue here because the facts are inconsistent with Union Pacific's position. The railroad's application for a franchise does not mention the concerns of DHS. Further, Union Pacific's franchise application states that the pipeline is to furnish water for "community use." Moreover the railroad states that in the franchise application that the existing line is not in the count right-of-way. The record does not contain any documented directive from DHS to replace an existing pipeline on county roadway.

Although Union Pacific offers a theoretical alternative interpretation of Gov. Code Section 26001, the facts of this case still support a conclusion that the railroad dedicated the water pipeline when it made representations of community use in applying for a franchise to locate a pipeline on county roads.

E. Rates

Union Pacific contends that the PD arbitrarily and unconstitutionally fails to establish water rates reflective of the costs of providing service and capital expenditures. Union Pacific contends that the issue of establishing a water rate for the system is a central part of this proceeding since its inception. Union Pacific observes that the ALJ and parties agreed at the August 4, 2000 PHC, that the evidentiary hearing should be delayed until February 2001, so that parties could address rates.

The record supports the position of Union Pacific that the record is sufficient to establish rates. The PD erred in concluding that the information presented at hearing is too preliminary to establish rates. All parties were provided notice that rates would be set in this proceeding. In fact, ORA requested a seven-month delay for the specific purpose of analyzing the Keene Water System and proposing rates.

Although ORA presented very limited testimony on rates and recommended that Union Pacific file an application to set rates, Union Pacific offered a proposal for setting rates. Moreover, Union Pacific provided ORA an opportunity to review its proposal including the provision of backup documentation concerning its costs. Consequently, the PD should be modified to set rates for the Keene Water System.

F. Keene Housing

Union Pacific objects to the discussion in the PD concerning housing in Keene. The PD states that:

"The record reflects that most of the housing in Keene was built by the railroad for its employees. The railroad subsequently sold those houses to non-employees. Nothing provided prospective house buyers with constructive notice of the railroad's intention to provide the water strictly on a surplus basis and as an accommodation. Most current homeowners purchased their homes believing the railroad would continue to provide water for the community."

Further, finding of fact number 8 states:

"Most current homeowners purchased their homes believing the railroad would continue to supply water to the Community."

The discussion and finding of fact 8 stem from the testimony of Brigit Beard whose testimony is based upon discussions with her neighbors. Union Pacific contends that reliance upon such hearsay fails to preserve its substantial rights. Additionally, Union Pacific asserts that the discussion and proposed finding do not clearly relate to the issues of this case. Lastly, Union Pacific also makes a procedural objection to the admission of Beard's testimony.⁸

We do not agree with the suggestion that hearsay testimony automatically precludes admission of testimony. We observe that much of the testimony of Union's Pacific's witness Lyon is based on hearsay conversations with former employees. Regardless, we agree with Union Pacific that finding of fact 8 has minor relevance to the issues we resolve. Thus, we will modify the PD to eliminate finding of fact 8.

Findings of Fact

1. Over 80 years ago, SP constructed, operated, and maintained a water system for the purpose of supplying water for steam locomotives and railroad facilities. A pipeline carried water from Tehachapi to Keene and Caliente.

2. In the 1960's, SP's need for water substantially diminished with the retirement of steam locomotives.

3. Starting in the 1990's, and continuing to the present time, the Keene Water System was and is not primarily used by SP or Union Pacific for their own domestic or industrial purposes or for the irrigation of lands owned by SP or Union Pacific.

4. In 1994, SP abandoned the pipeline from Tehachapi to Keene.

5. In 1994, SP drilled new water supply wells in Keene.

6. In 1996, SP applied for a nonexclusive franchise to build a water pipeline for community use.

7. Union Pacific (after merging with SP) performed substantial repairs to the water system in 1997, at a time when the system was no longer used in railroad operations.

8. D.97-09-014 dismissed C.89-06-051 without prejudice for lack of prosecution.

9. In 2000, Union Pacific's water-hauling costs declined from the previous year.

10. Union Pacific's proposed operating costs should be reduced by $34,698 to $118,054.

11. Water consumption should be not be adjusted to reflect water consumed by the Edwards Family which owns the Three Peaks Ranch.

12. Edwards or Union Pacific should pay for water delivered from the Keene Water System to Edwards or the Three Peaks Ranch.

13. Union Pacific benefits from having access across the Edwards property.

14. The testimony of Stonybrook contains legal argument.

Conclusions of Law

1. To constitute a public utility, there must be a "dedication" of property to the public use. Dedication may be express or may be implied from conduct.

2. Based on the conduct of Union Pacific and SP, the Keene Water System has been dedicated to public use.

3. The Keene Water System is a public utility water system under Section 2701.

4. Section 2704 does not exempt the Keene Water System from Commission regulation.

5. D.97-09-014 does not estoppe the Commission from exercising jurisdiction over the operation of the Keene Water system.

6. Union Pacific should continue to provide water to all existing customers as of the date of the initiation of this OII so long as the water consumed is paid for.

7. Union Pacific did not present sufficient evidence for the Commission to consider the issue of abandonment.

8. Union Pacific's proposed water-hauling costs should not be included in its operating costs.

9. Higher water rates should promote conservation.

10. Union Pacific's capital expenditures of $609,226 appear necessary and reasonable.

11. A 30 year depreciation life for capital expenditures for water line replacements appears reasonable.

12. An annual depreciation expense of $20,543 appears reasonable.

13. An annual return of 9% on capital appears reasonable.

14. An annual return on capital of $55,468 appears reasonable.

15. Union Pacific projected water consumption of 10,680,854 gallons for year 2000 appears reasonable.

16. A system consumption of 10,680,854 gallons should be used to establish water rates.

17. Union Pacific should be authorized to file tariffs to establish water rates of $18.17 per thousand gallons.

18. Union Pacific should file tariffs to establish a water rate of $18.17 per thousand gallons.

19. Today's decision should be made effective immediately so that the operation of the Keene Water System may be swiftly brought into conformity with statutes and regulations governing public utilities.

ORDER

IT IS ORDERED that:

1. Union Pacific Railroad Company (Union Pacific) shall file tariffs within 60 days establishing a water rate of $18.17 per thousand gallons.

2. Union Pacific shall continue to serve all existing water customers.

3. Union Pacific may file an application to transfer the Keene Water System.

4. The motion of Union Pacific to strike portions of the testimony of Stonybrook Corporation is granted in full.

5. This proceeding is closed.

This order is effective today.

Dated , at San Francisco, California.

APPENDIX A:

Summary of Agreements

Between Union Pacific/Southern Pacific and

Water Customers in the Kern County Communities of Keene and Woodford

1. Upper and Lower Keene Groups Agreements

Two agreements between SP and Elmer Brown (Upper Keene Group, 1954) and SP and Keene Lower Group (1960) provide:

Railroad hereby permits Licensee, as a matter of accommodation, and not as a legal right, to take and appropriate temporarily such surplus water from the water system of Railroad as is available and can be spared in the judgment of Railroad at Woodford (Keene), County of Kern, State of California; it being expressly understood and agreed that the railroad is not engaged, nor does it intend to engage, in the business of developing, supplying or distributing water to Licensee, the public or any one else for domestic, manufacturing, or any other purpose, and, in consideration of the accommodation service given by Railroad hereunder, Licensee hereby expressly waives all claim against said Railroad for failure at any time to furnish water to Licensee.

These agreements remain in effect and are subject to termination on thirty days' written notice. There is a supplemental agreement with Elmer Brown (Upper Keene Group, 1959).

2. National Farm Workers Service Center/Stonybrook Corporation Agreements

SP and National Farm Workers Service Center, Inc. (the parent company of Stonybrook, hereafter referred to as Stonybrook) adjudicated their respective rights in Superior Court. The judgment entered provides that:

The NFW may continue to divert water from the SP water line at a rate not to exceed 30,000 gallons per day, expense free, until December 31, 1985. Southern Pacific and the NFW shall execute a surplus water agreement for the delivery of water during 1986 in the form attached as Exhibit B. Southern Pacific shall have no obligation to deliver water to the NFW after December 31, 1986. (Southern Pacific Transportation Company v. National Farm Workers Service Center, Inc., Superior Court, Kern County, Case No. 179754, entered August 22, 1986.)

An emergency water agreement entered into between SP and Stonybrook on January 15, 1988, for a maximum of thirty days provides:

Railroad hereby permits Licensee, as a matter of neighborly accommodation, and not as a legal right, to take and appropriate temporarily such surplus water from the water system of Railroad as is available and can be spared in the judgment of the Railroad at B-Main Engineer's Station 13476+65.0, County of Kern, State of California; it being expressly understood and agreed that the Railroad is not engaged, nor does it intend to engage, in the business of developing, supplying or distributing water to Licensee, the public or any else for domestic, manufacturing, or any other purpose, and Railroad's water supply has not been and is not now dedicated to public use . . .

The parties entered into subsequent emergency water agreements in August, September, and October, 1988. The last agreement remained in effect until December 31, 1988.

3. Kern County Fire Department Agreement

In June 1992, SP and Kern County entered into an emergency water agreement for the Kern County Fire Department to remain in effect until December 31, 1992. The agreement provides:

The Railroad hereby permits the Licensee, as a matter of neighborly accommodation, and not as a legal right, to take and appropriate temporarily such water from the water system of the Railroad as is available and can be spared in the judgment of the Railroad at lower Keene. All water delivered hereunder shall be delivered by the Railroad to the Licensee on the downstream side of the Railroad's meter on the Railroad's pipeline at lower Keene. . . The Licensee hereby acknowledges that . . . (c) the Railroad is not engaged, nor does it intend to engage, in the business of developing, supplying or distributing water to the Licensee, the public or anyone else for domestic, manufacturing, or other purposes, (d) the Railroad's water supply has not been and is not now dedicated to public use . . .

The original agreement was amended several times to remain in effect until December 31, 1994. The agreement has expired, but Union Pacific continues to provide water to the Kern County Fire Department.

4. Cummings Settlement Agreement

SP and the Cummings entered into an agreement in the early 1980's that permitted the Cummings to connect to the railroad's water system. SP/Union Pacific and the Cummings disagreed on the specific terms of that agreement. In an April 2000 settlement agreement, Union Pacific and Barbara and Steven Cummings agreed that Cummings would be responsible for all water from and after May 1, 2000, and Cummings agreed to relinquish any disputed claimed right for the supply of water by Union Pacific to Cummings.

5. Schneider and Barker (Three Peaks Ranch) Easement

On December 1, 1997, Schneider and Barker granted Union Pacific an easement. Union Pacific agreed:

Subject to the availability of adequate water from its wells in Keene, to supply [Schneider and Barker] with water . . . [Schneider and Barker] shall have the right to not more than 48,000 gallons of water per month free of charge. If [Schneider and Barker] uses any water above that monthly amount, [Schneider and Barker] shall pay [Union Pacific] at rates equal to the rates [Union Pacific] normally charges its other water customers in the Keene area.

The easement is irrevocable.

6. Tony Martin Connection

Union Pacific provided a direct connection to Tony Martin, a former customer in the Lower Keene Group, at his request in 1997. The line to Martin was in poor condition and in serious need of replacement.

(END OF APPENDIX A)

APPENDIX B:

Union Pacific's Operating Cost
for the Keene Water System

APPENDIX B

Cost Category	1997	1998	1999	2000(YTD)
Water Analytical	$16,774	$5,866	$5,998	$3,440
Chlorination	$8,370	$1,735	$3,078	$4,652
Water Hauling	$236,790	$7,074	$34,698	$22,840
Permits and Fees	$7,721	$8,290	$3,827	$14,503
Contractor Maintenance and Repair	$26,800	$ 0	$4,470	$21,973
Technical Consultant	Unknown	$10,855	$15,697	$17,877
Vehicle Costs	Unknown	Unknown	$13,437	$12,317
Electricity	Unknown	Unknown	$5,317	$5,198
Labor (UPRR)	Unknown	Unknown	$58,370	$46,892
Maintenance Materials (UPRR)	Unknown	$4,382	$7,860	$10,058
Total	$315,209	$56,986	$152,752	$149,750

(END OF APPENDIX B)

APPENDIX C:

Appearances

APPEARANCES

************ APPEARANCES ************

Bridget Beard
PO BOX 118
KEENE CA 93531
(661) 822-3823
reigler@cybersurfers.net
For: SELF

Donna Christy
PO BOX 67
KEENE CA 93531
(661) 822-3448
For: SELF

Mark Dowdle
PO BOX 274
BAKERSFIELD CA 93302-0274
(661) 664-3233
mdowdle@csub.edu
For: DOWDLE

Wayne Williamson
EXCELLENCE BY DESIGN
701 EL DORADO ST.
VALLEJO CA 94590
(707) 552-5699
salt001@zeronet.net
For: EXCELLENCE BY DESIGN

Peter G. Fairchild
Legal Division
RM. 5038
505 VAN NESS AVE
San Francisco CA 94102
(415) 703-2049
pgf@cpuc.ca.gov
For: WATER DIVISION - RATEPAYER REPRESENTATION BRANCHPeter G. Fairchild
Legal Division
RM. 5038
505 VAN NESS AVE
San Francisco CA 94102
(415) 703-2049
pgf@cpuc.ca.gov
For: WATER DIVISION - RATEPAYER REPRESENTATION BRANCH

Margaret Henderson
Property Owner/Water Consumer
30166 WOODFORD-TEN ROAD
KEENE CA 93531
(661) 822-5608
For: SELF

Emilio J. Huerta
Attorney At Law
LAW OFFICE OF EMILIO J. HUERTA
108 SOUTH ROBINSON STREET
TEHACHAPI CA 93561
(661) 823-9300
For: CUSTOMER STONYBROOK CORPORATION

Robert C. Bylsma
Attorney At Law
UNION PACIFIC RAILROAD
10031 FOOTHILLS BLVD. SUITE 200
ROSEVILLE CA 95747
For: UNION PACIFIC RAILROAD COMPANY

Ronald L. Wade
UPPER KEENE WATER USER
PO BOX 37
KEENE CA 93531
(661) 822-6698
For: UPPER KEENE

(END OF APPENDIX C)