II. Background

By D.71889 issued January 24, 1967, the Commission authorized SCWC to transfer the City water system and 22,000 acre feet per year (AFY) to the City of Folsom. In November 1994 SCWC signed an agreement to lease in perpetuity an additional 5,000 AFY to the City. SCWC did not seek Commission approval under Public Utilities Code § 851 for the 1994 lease with the City. As a result, the Commission determined that SCWC violated § 851 by not seeking approval for a water rights lease agreement that it entered into with the City (D.04-03-039). Accordingly, the Commission fined SCWC a net total of $180,000 ($1,095,000 with $915,000 suspended) for that violation. Moreover, the Commission determined that while the City acted in "good faith for value", the City was entitled only to retrospective protection of its lease of water rights, pending further record development in the issue of Folsom's prospective rights under the voided lease.