IV. Comments on the Proposed Draft Decision

On March 26, 2004, a "Proposed Draft Decision of President Peevey and Commissioner Kennedy", which addressed Folsom's petition for modification was issued. Comments were due on March 30, 2004. Comments were timely filed by Southern California Water Company, City of Folsom and the Office of Ratepayer Advocates. By way of summary, Folsom supported the draft decision with minor changes. Their comments were considered and changes to the draft decision were not deemed necessary. The SCWC supported the draft decision but sought clarification as to whether or not they had to file a brief addressing the rights of Folsom under three different circumstances. The draft decision provided clarity and required that SCWC file a § 851 decision within 30 days of the decision. ORA challenged the draft decision's conclusion that Folsom is a "bona fide purchaser" and entered into the leased water rights agreement with SCWC in good faith for value. ORA argued that an appropriate reading of § 851 would lead one to conclude that the water rights still are useful to SCWC and that prospective use of the leased water could not be granted until the Commission determines that the property is not useful to SCWC. We disagree.

The Commission does not have the power under § 851 to declare Folsom's entitlement to the water rights void; it has only the power to declare the lease of those rights void. The second paragraph of § 851, in our opinion, recognizes that a good faith purchaser for value from an owner with good title, like the water company, is going to acquire good title from his seller.

On March 26, 2004, an Alternate Draft Decision of Commissioner Lynch was issued for comment. The voiding of the lease pursuant to Ordering Paragraph 7 of D.04-03-039 was stayed in order to clarify Folsom's continuing right to use water under the lease. The alternate draft decision was adopted at the April 1, 2004 Commission Meeting. There was no action taken on the Peevey and Kennedy draft decision. Accordingly, an Assigned Commissioner's Ruling was issued on April 2, 2004 that bifurcated the issue of Folsom's prospective use of the leased water from the Commission's consideration of SCWC's § 851 application. Also, an oral argument on April 19, 2004 was granted to allow parties further opportunity to comment on the prospective use of leased water by Folsom. Due to the very short comment period for the March 26, 2004 draft decision, additional comments were taken.

The re-circulated draft decision of President Peevey and Commissioner Kennedy in this matter was mailed to the parties in accordance with Public Utilities Code Section 311(g)(1) and Rule 77.7 of the Rules and Practice and Procedure. Comments were due on April 14, 2004, and an oral argument was held on April 19, 2004. Comments were timely filed by Southern California Water Company, City of Folsom and the Office of Ratepayer Advocates. SCWC argues that § 851 provides that a disposition of property by a public utility shall be conclusively presumed to be property, which is not useful or necessary of its duties to the public, as to any purchaser, lessee or encumbrancer dealing with such property in good faith for value. SCWC suggests that past Commission decisions and California case law would provide Folsom with a favorable reading of its prospective right to the leased water.

Folsom again supports the Peevey and Kennedy draft decision and in doing so provides an extensive legal analysis of the legislative intent of § 851, past Commission decisions, and California case law. In sum, Folsom argues that the plain language of § 851 conclusively establishes the rights of good faith purchasers for value in their acquired property. Folsom adds that the legislature clearly intended to protect purchasers dealing with such property in good faith for value. In short, Folsom concludes that the Commission is statutorily precluded from voiding the property rights of a good faith purchaser for value. We agree.

ORA, after having more time to reflect and analyze the legal implications of granting Folsom's prospective use of the leased water rights, reverses its earlier course and acknowledges that Folsom has a continuing right to the leased water, assuming it is a good faith purchaser. ORA now recognizes that underlying Commission decisions and a Supreme Court opinion supports Folsom's argument that it as a good faith purchaser is prospectively entitled to the leased water. Nonetheless, ORA is not convinced that Folsom has conclusively demonstrated that it is a bona fide purchaser to the leased water, although no party (including ORA) asserts otherwise, and would require that this issue be disposed of in SCWC's § 851 application. To our knowledge, no party has provided evidence that Folsom is not a bona fide purchaser; in fact Folsom has submitted two declarations by its City attorney that it indeed is a bona fide purchaser, and, further argued that the Commission has already disposed of this factual issue in D. 04-03-039, by finding Folsom properly used the water rights since the inception of the sale transaction.

On April 16, 2004, Folsom submitted a Motion to Strike Section II of ORA's supplemental comments. We will not strike ORA's comments as we believe that ORA is entitled to provide analysis and conclusion on the issue of Folsom's water rights. However, we decline to devote further hearing or deliberative efforts on this issue. Additionally, Folsom filed a supplemental declaration of Mr. Steven P. Randolph on April 16, 2004 in support of Folsom's petition for modification. This filing is similar to the declaration that Mr. Randolph executed on March 25, 2004.