Assignment of Proceeding
Susan P. Kennedy is the Assigned Commissioner and Victor D. Ryerson is the assigned ALJ in this proceeding.
1. The $25,000 withdrawal from Hillview's SDWBA account on January 31, 1992, was not approved by the Commission. It was, however, approved by the Department of Water Resources, and was used for utility purposes.
2. The four withdrawals from Hillview's SDWBA account on June 30, July 31, September 30, and October 30, 1993, were paid to Forrester and his ex-wife Judith, and were not approved by the Commission.
3. The respondents did not seek prior Commission approval of the $424,000 SBA loan to Hillview in 1994. Res. No. W-3833 (March 9, 1994) reflects that the Commission was by then aware of this unauthorized borrowing.
4. By July 31, 1998, Forrester paid all of the $141,546.97 owed to Hillview as partial repayment of the $350,000 the company had loaned to him and his ex-wife, Judith.
5. Hillview sought prior approval of the two CoBank loans by a draft AL filed on October 6, 1993. Res. No. F-632, issued in response to the request on November 22, 1994, reflects that the Commission was aware Hillview was in violation of Section 825 for failure to secure prior approval of Hillview's commercial debt.
6. Hillview modified certain Commission-approved service connection applications and main extension contract forms used to implement Tariff Rule 15, by inserting provisions requiring the customer to pay a nonrefundable "Supply and Storage Fee." The term, "Supply and Storage Fee" does not appear in Tariff Rule 15 or any other Commission-approved tariff that pertains to this investigation.
7. From 1982 until at least 1993, utilities were only permitted to collect fees to pay for supply and storage facilities from developers, and not from individuals, under the terms of Commission-approved tariffs.
8. Hillview collected "Supply and Storage Fees" from individual customers until 1994. The receipt of all such fees was recorded in Hillview's CIAC accounts, and the funds were used to add supply and storage facilities needed to serve the districts in which the properties for which they were paid are located.
9. The "Supply and Storage Fees" Hillview collected were not included in its rate base, and the company has not earned a return on these funds.
10. Hillview's failure to refund these fees as advances pursuant to the refund schedule in Paragraph C.2.c of Tariff Rule 15 was contrary to the express requirements of that tariff.
11. Hillview did not properly make the election to treat payments for customers as non-refundable contributions under applicable tariff rules.
12. Hillview's practice of collecting "Supply and Service Fees" until June 1994 was not provided for in Tariff Rule 15.
13. Hillview's alteration and use of Commission-approved forms used to implement Tariff Rule 15 without obtaining prior Commission authority was contrary to Paragraph A.1.a of that tariff.
14. Hillview's noncompliance with Commission-approved tariffs as described herein did not harm customers or benefit the respondents, because any fees paid by individual customers that might otherwise have been refundable were used for construction of supply and storage facilities serving their properties, and the cost of those facilities was not recorded in rate base or used in setting customers' rates.
15. In response to two data requests, Hillview furnished to Staff photocopies of completed application forms that had been altered by replacement of the bottoms of the original documents. The principal instance was a data request for a list of customer names. Production of the names in this fashion was responsive to the request, and any obliterated information was readily available to Staff.
16. There is no substantial evidence that the respondents altered any documents in an effort to mislead the Commission.
17. Hillview did not enter into main extension contracts with Longs Drugs or Vons Markets in compliance with Tariff Rule 15 when those customers arranged for service to the properties involved in this investigation.
18. There is no substantial evidence in the record that respondents diverted revenue collected expressly to repay its SDWBA loans from the special surcharge account and applied them to other purposes, including personal business use by Forrester, except for the withdrawals referred to in Finding of Fact 2, above, which were purportedly payments to Forrester and his ex-wife Judith in partial satisfaction of a debt owed to them by Hillview.
19. There is no substantial evidence in the record that Hillview submitted AL 53 for additional authority to expand facilities and increase indebtedness, and in it misstated the level of the special fund account due to diversion in a manner prohibited by Commission rules and orders.
20. The Forresters' assumption of a $47,900 loan to the company by Linton and cancellation of that debt as part of the 1992 loan transaction was based upon a substantiated pre-existing obligation to Linton for sums he had advanced on behalf of the company and cash he had paid to the company.
21. In the 1992 transaction, Forrester did not immediately loan $141,546.97 to the company, as reflected in the terms recorded for that loan transaction.
22. The book entry made in 1992 that included the $350,000 obligation was not properly recorded. That transaction should have been recorded as set forth in Exh. 124 under proper accounting procedure.
23. As a result of improper recording of the 1992 transaction, Hillview's CIAC was understated, and its rate base was overstated, by $141,546.97 for the 1994 test year. However, Hillview's rate base was actually understated at that time, because its recorded average plant in 1994 was higher than the test year average plant which was used to set Hillview's rates for the period from 1993 until 2001, when we granted a general rate adjustment in this proceeding.
24. In the 1993 General Rate Case, we adopted a low rate of return for Hillview because of its previous unauthorized borrowing activities.
25. The plant contributed by 41/49 pursuant to its 1992 main extension contract with Hillview was in fact installed.
26. At the time 41/49 made the $350,000 loan to the Forresters, it had already fully satisfied its obligation to contribute utility plant under its main extension contract with Hillview.
27. The $350,000 personal loan to the Forresters was not recorded as a loan to the company.
28. There is no evidence that Hillview obtained the $424,000 SBA loan in order to mislead Golden Oak Bank or the Commission.
1. Based upon the foregoing findings, the respondents violated Section 491 prior to July 31, 1994, by conduct contrary to various provisions of Commission-approved tariffs.
2. Based upon the foregoing findings, the respondents did not violate Section 581 as alleged in the OII.
3. Based upon the foregoing findings, the respondents violated Section 825 by incurring indebtedness on behalf of Hillview without first obtaining an order of the Commission granting authority to do so.
4. Based upon the foregoing findings, the respondents did not violate Commission Rule of Practice and Procedure 1, as alleged in the OII.
5. Based upon the foregoing findings, the respondents should not be ordered to pay any fine or make any refund to individual customers. Any requirement for the respondents to pay a fine would further weaken the financial condition of the company to the detriment of its ratepayers.
6. Based upon the foregoing findings, a final reconciliation of Hillview's accounts should be prepared to explain and correct any discrepancies or irregularities disclosed by the record as identified in our findings, for the period from January 1, 1991, through July 31, 1998. If any misappropriation of funds is discovered in that reconciliation, those funds should be repaid to Hillview with interest at the rate applicable to the SDWBA account at the time of their withdrawal.
7. Based upon the foregoing findings, the respondents should be subject to a five-year period of probation to ensure compliance with the statutes they have violated, without limitation of other potential regulatory action. Remedies for any violation that occurs during the probationary period should include consideration of providing water service to Hillview's customers by means other than a utility managed by Forrester.
IT IS ORDERED that:
1. Within 60 days of the effective date of this order, the respondents Hillview Water Company, Inc. (Hillview) and Roger L. Forrester (Forrester), the principal shareholder and president, shall prepare and file with the Commission's Water Division, for review by non-advocacy staff, a final reconciliation of Hillview's accounts for the period from January 1, 1991, to and including July 31, 1998. The reconciliation must explain all of the discrepancies and irregularities to which Findings of Fact 2, 22, and 23 refer, and provide a full accounting of the disposition of the withdrawals from Hillview's Safe Drinking Water Bond Act (SDWBA) account made between June 30 and October 30, 1993, by respondent Forrester or his ex-wife, Judith. The reconciliation shall be prepared in accordance with generally accepted accounting practices, and shall be in a form that will enable Hillview`s accounts to be corrected and restated as necessary. If the reconciliation discloses that funds were misappropriated from any Hillview account by Forrester, or by anyone subject to his direction or supervision (with or without his consent) and have not been repaid to Hillview, Forrester shall repay all such funds to Hillview within 60 days, with interest at the rate applicable to Hillview's SDWBA account at the time the funds were withdrawn.
2. If the Water Division staff determines that the reconciliation required by Ordering Paragraph 1 demonstrates that Hillview's revenue requirement is materially inaccurate for purposes of setting just and reasonable rates, Hillview shall file, within 60 days, an informal general rate case to properly adjust its rates. The effective date of the resulting rates shall be the date when the informal general rate case is filed.
3. The respondents shall comply with all statutes, rules, and orders administered under the jurisdiction of this Commission. Without limitation of other possible regulatory actions, a new proceeding, incorporating the record of this investigation, shall be instituted if the Commission's Water Division within five years after the effective date of this Order shows by declaration made under penalty of perjury that the respondents, or either of them, have violated Section 491 or Section 825 of the California Public Utilities Code. If a proceeding is opened pursuant to this Ordering Paragraph, consideration may be given to providing service to Hillview's customers by means other than a utility managed by respondent Forrester.
4. Investigation 97-07-018 is closed.
This order is effective today.
Dated _____________________, at San Francisco, California.
