V. Assignment of Proceeding

Michael R. Peevey is the Assigned Commissioner and David Fukutome is the assigned ALJ in this proceeding.

Findings of Fact

1. In D.04-03-039, the Commission found that SCWC violated § 851 by not seeking the Commission's approval for its lease of water rights to the City.

2. As part of the remedy outlined in D.04-03-039, the Commission voided the lease as to SCWC, and fined SCWC the net sum of $180,000.

3. In D.04-03-039, the Commission safeguarded the City's retrospective rights under the voided lease agreement and reserved decision on the City's prospective right pending further record development.

4. As a result, the City has filed a petition to modify D.04-03-039 because of the serious and immediate effects that occurred because the Commission did not protect its prospective rights under the lease.

5. The City may have to refinance on unfavorable terms over $100 million of existing utility bonds.

6. The City may be in jeopardy in being able to finance planned expansions of the City's East Area.

Conclusions of Law

7. The City has demonstrated that there are severe and immediate impacts to its water supply and financial health because the Commission did not grant prospective approval of its leased water rights.

8. Pursuant to Government Code Section 11125.3 (a)(2), there exists a need to take immediate action in that the City of Folsom's water supply may be severely curtailed and its financial condition negatively impacted if the Commission does not review its D.04-03-039 adopted March 16, 2004; this need for action came to the Commission's attention subsequent to the mailing of its April 1, 2004 agenda.

9. The Commission in D.04-03-039 concludes that the City is a good faith purchaser for value in compliance with § 851.

10. In this instant case, the Commission must reconcile the City's needs for the leased water rights to its obligation to enforce § 851 by determining whether or not the agreement between the City and SCWC for leased water serves the public interest.

11. After a review of new information, the Commission concludes that § 851 protects the City's acquired interest in the water both with respect to the past and to the future notwithstanding the voiding of the lease as to SCWC.

ORDER

IT IS ORDERED that:

12. Within 30 days from the issuance of this opinion Southern California Water Company is to file a § 851 application for the leased water rights agreement with the City of Folsom.

13. We direct that the parties in that application proceeding address the following topics:

a. How SCWC will obtain water sufficient to serve its customer base without the 5,000 AFY leased to the City.

b. The proper accounting and ratemaking treatment of future lease revenues under the City lease.

c. Any appropriate measures to ensure ratepayers are not adversely affected by the lease of water rights to Folsom.

Dated , at San Francisco, California.