IV. CPCN Requirements
For a small water provider like Casmite, the provisions of the Public Utilities Code, the Commission's Rules of Procedure and Practice (Rules), and Resolution M-4708 (Aug. 28, 1979) set forth requirements and criteria that must be satisfied before a CPCN is granted.
The Public Utilities Code contains both substantive and procedural requirements for an entity to be considered a public utility and issued a CPCN. Section 2701 defines a Commission-regulated water utility as a person or entity that "sells, leases, rents, or delivers water to any person, firm, corporation, municipality, or any other political subdivision of the State, whether under contract or otherwise, . . . ." Judicial decisions have also required that the entity dedicate or hold out its property to public use. Thayer v. California Development, 164 Cal. 117 (1912).
In this proceeding, Casmite affirmatively seeks public utility status. Casmite's application indicates it will continue to provide water to seven customers including Casmalia Community Services District that, in turn, distributes water to 54 other residential and business customers (the town's population is estimated at 200 persons). Casmite proposes that this water service be provided under rates approved by the Commission. Under the substantive law, Casmite will operate as a public utility.
The Public Utilities Code also includes several procedural requirements. The applicant for public utility status must file a certified copy of its articles of incorporation or charter and evidence that the applicant has received any necessary consent of public agencies. Pub. Util. Code § 1004. The code also requires that the Commission, in evaluating the application, consider the potential impact of utility operations on community values, recreation and park areas, historical and aesthetic values, and the environment. Id. § 1002(a).
In its application, Casmite has provided its Certification [articles] of Incorporation filed with the Nevada Secretary of State on October 30, 1936, as well as the Nevada Secretary of State's Certificate of Existence with Status in Good Standing (Oct. 17, 2003). Application Ex. A. Casmite has also provided the California Secretary of State's own certificate indicating that the corporation is qualified to transact intrastate business in California. Application Ex. B. Finally, Casmite has filed its Water Supply Permit, issued by the California Department of Public Health (Sept. 30, 1960) and its Amended Water Supply Certificate No. 0511, issued by the County of Santa Barbara (June 1, 1987). Application Ex. H. Casmite has submitted all the formal documentation required by statute for the issuance of a CPCN.
Unfortunately, the rates we authorize as part of this decision (see Part VII, infra) are a substantial increase for persons receiving water from the Casmite system. A rate increase would be likely no matter who operated the water system. In any event, the disadvantage of a rate increase, we believe, is outweighed by the benefits of imposing rate and quality-of-service regulation on a water provider that, for decades, has operated without a CPCN and beyond Commission supervision. In this manner, community values will be enhanced.
Because we are issuing a CPCN to an existing water system, there are no identified impacts to recreation and park areas or historical and aesthetic values. Any impact to the environment is addressed under the discussion of CEQA. See Part VI, infra.
Rules 18 and 23 set forth requirements that must be satisfied as part of an application for a CPCN and to authorize rates. The relevant requirements of Rule 18 include a full description and map of the system, identification of potential competitors, financial information, ratesetting information, and facts supporting the issuance of a CPCN. Perhaps the most important provision of Rule 18 is the requirement that the application demonstrate "[f]acts showing that public convenience and necessity require . . . the proposed construction or extension, and its operation," Rule 18(e), or in this case, the operation of the existing system as a public utility. The application demonstrates that public utility regulation is necessary to safeguard a small number of customers who have no water supply alternatives, ensure reasonable and fair rates for both the ratepayers and the company, and monitor water service and quality in an industrial area prone to water quality problems.
Rule 23 requires more specific financial information justifying rate increase applications. Because Casmite proposes a substantial increase over existing charges for water, Rule 23 is applicable. Casmite's application and supporting exhibits provide the information required by these rules.
The evaluation of the proposed rates, however, is set forth later in this decision. See Part VII, infra.
For its part, Resolution M-4708 sets forth six basic criteria that are used to evaluate the applications of small water companies (Class D companies, i.e., those serving less than 500 customers). As pertinent to this application, the resolution specifies that the Commission will issue CPCNs only when the water company is able to render adequate service; remain financially viable; and no other existing, viable water provider is available to serve the proposed area. The Water Division's report specifically addresses these six areas and concludes that Casmite has satisfied all of Resolution M-4708's relevant criteria under present circumstances.
Two of the six criteria are especially applicable to Casmite's application and warrant further comment here: (1) whether need for the utility is demonstrated by the applicant's showing that no other viable "entity is willing and able to serve the development and concrete present and/or future customer demand exists"; and (2) whether the applicant's "viability is demonstrated, ordinarily through the following tests: [a] proposed revenues would be generated at a rate level not greatly exceeding that set for comparable service by other water purveyors in the general area; [b] the utility would be self-sufficient . . .; [c] the applicant would have a reasonable opportunity to derive a fair return on its investment . . . ."
No other potentially viable water provider exists to serve the Casmalia area. As indicated by the Water Division, "[t]he closest public water system (Southern California Water Company - Santa Maria district) is located several miles away, does not share a contiguous boundary to the Casmite system, and has expressed no interest to acquire Casmite." Water Division, Findings and Recommendations at 6 (July 8, 2004).
If rates are established in the manner discussed later in this decision, see Part VII, Casmite can be a viable, self-sustaining utility. The rates necessary to do so will be high and burdensome to ratepayers, but these rates are required in order to provide adequate service for an extraordinarily small system while allowing Casmite a reasonable opportunity to earn a fair rate of return. Casmite and its customers should remain alert to opportunities to fold this system into a larger water supply entity where economies of scale may result in reduced rates.
