5. Discussion

If there were time, a prudent course for the Commission would be to postpone action on this application until it is known whether the Utility District will acquire the Donner water system. A significant number of Donner's customers support that acquisition. The Utility District appears willing and able to take over the Donner water system and begin necessary repairs.

Time, however, is running out. Because of weather conditions, the construction season in Truckee extends only from late April through October. During that limited period, Donner must replace substantial portions of its distribution system, its water storage tanks, and its lake intake facility under the compliance order of our sister agency, DHS. The boil-water order inflicted on thousands of Truckee residents and visitors will not be lifted until DHS is satisfied that replacement of the distribution system and other required work have reduced the existing threat to public health.

Donner is the only entity now authorized to make these repairs. Its engineering plans for the work are complete and in place. Its applications for a commercial loan and, later, a low-interest Revolving Fund loan have been submitted, preliminarily approved, and wait only the authorization of this Commission.

Just as significantly, this year's replacement of pipeline and storage tanks and construction of a new lake intake facility are DHS requirements that must be made regardless of who owns and operates the water company. If work begins now, customers will be that much closer to restoration of normal service regardless of whether ownership of the company changes hands or not.

Customer intervenors presented testimony and appear to believe that a transfer of ownership can take place quickly. As noted by Donner, however, even a friendly sale would require review and approval by this Commission under Pub. Util. Code § 851, and that process would take weeks, at best, and months if protests are filed and hearings are required. If Donner resists acquisition at the price offered, the Utility District can proceed in Superior Court, exercising its powers of eminent domain. But that process also takes time.

Based on the evidence presented by DHS, a failure to begin renovation now could mean that repairs required this year would not be completed, Donner would be subject to DHS penalties, and customers would have to endure undrinkable water until construction could resume in 2002. By contrast, as ORA testified, if repairs begin now, the boil-water order could be lifted by late summer or fall of this year.

Faced with these alternatives, customer intervenors stated at hearing that they would not oppose the interim $4.5 million loan authorization for Donner for the work this summer, with appropriate oversight, but they do oppose granting the company authority for the total $15.5 million in loans to finance the five-year renovation. The difficulty with that, as ORA confirmed and showed at hearing, is that the low-interest Revolving Fund loan will not be granted by the Department of Water Resources unless the loan covers the entire renovation of the system required by DHS and set forth in the five-year plan.

Since the Revolving Fund loan at 2.8% interest will be used to replace the $4.5 million commercial loan at 10% interest, and since the loans will be drawn on only as work proceeds, we agree with ORA that authorization for the full amount should be granted. The Utility District's general manager testified that he anticipated little difficulty in having the loan transferred to the District if acquisition takes place.

Accordingly, we will approve the settlement agreement (Attachment A) between ORA and Donner, since we find that it is reasonable in light of the whole record, consistent with law, and in the public interest. ORA's protest to this application is subsumed in the settlement agreement.

The protest remaining is that of customer intervenors. Customer intervenors showed at hearing that Donner's management did not react promptly to a number of deficiencies cited by DHS. The evidence also shows that Donner placed too much reliance on its proposed treatment plant and not enough reliance on aggressive maintenance and repair. This evidence, while powerful, goes more to the issue of what conditions should be placed on borrowing authority rather than on whether borrowing authority should be granted at all. Customer intervenors have shown that strict safeguards should accompany any additional borrowing authority granted to Donner. On the other hand, pursuant to Pub. Util. Code § 816, et seq., Donner has shown by a preponderance of evidence that the requested financing is prudent and necessary to restore safe and reliable water service to customers, and that Donner is capable with proper oversight of getting the work done.

Accordingly, we will grant the application on the terms and conditions reached by the company and by ORA in their settlement agreement, requiring strict safeguards on how the money will be used and how the construction will be supervised. To the extent that the protest of customer intervenors seeks denial of Donner's request for borrowing authority, the protest is denied.