Discussion

The present application is not one in the usual context of a sale and transfer application before the Commission. The Traver system now before us was initially proposed and constructed in 1969 to be operated as a mutual water system.3 The Commission has no jurisdiction over mutual water systems. However, the Traver organizers never followed through and failed to legally constitute the system as a mutual entity. In succeeding years following its construction, it lost any responsible management and direction, maintenance tapered off, and the operators grew increasingly cavalier about their responsibilities and became unresponsive to the orders and requirements of the TCDHS. Finally, in 1990, this led TCDHS to go to Superior Court for appointment of a receiver.

A receiver is an officer of the Court, invested with the custody, control, and management of property to the end of preserving that property for whatever disposition the Court may finally determine. Here, Tito Balling was the appointed receiver and so performed to the satisfaction of the Court for ten years. However, receivership is not an end in itself, but is only a means to reach some legitimate disposition for the benefit of all concerned. In this instance, those concerned are the ratepayers served by the Traver system.4

The attempt, under the order of the Court, to complete the incorporation process of Traver as a mutual water system failed when no ratepayers were willing to serve on a new Board of Directors, no corporate documents could be located, and the ownership of the Traver assets could not be determined.

As a mutual could not be formed, and the system was delivering water for compensation to the public, including residential, business, and church customers, the system met the definition of a public utility (Pub. Util. Code § 2701), except that it lacked an owner.5 Accordingly, the Court determined to terminate the receivership by ordering sale of the assets to the highest bidder, on the condition that the bidder selected could obtain the requisite permit from TCDHS and satisfy the requirements of the Commission. The Court supervised sale has taken place and the Court has approved sale of the Traver assets to Balling, Inc.

Pursuant to provisions of California Health and Safety Code (CH&S) § 116525 (a), any person or entity operating a public water system must obtain a permit to operate that system, and any change in ownership requires the prospective new owner to apply to and satisfy the health department's requirement that the new owner "possesses adequate financial, managerial, and technical capability to assure the delivery of pure, wholesome, and potable drinking water" (CH&S Code § 116540). As noted, Balling, Inc. submitted the requisite assessment forms to the health department and on April 10, 2000, was advised of the department's acceptance. The department stated it had no reason to oppose the formal transfer of Traver to Balling, Inc.'s California Water Service Division. A copy of this approval was provided to ALJ Weiss on April 14, 2000.6

In private investor sales and transfers of public utilities, the function of the Commission is to protect and safeguard the interests of the public. The concern is to prevent impairment of the public service by the transfer of utility property and functions into the hands of parties incapable of performing an adequate service at reasonable rates. (So. Cal. Mountain Water Co. (1912) 1 CRC 520.)

The evidence in the present transfer proceeding does not provide any basis for concern over the technical, managerial, and financial ability of Balling, Inc. to be able to provide satisfactory service at reasonable and just rates. Balling's successful performance the past ten years as receiver of the Traver system provides adequate assurance. In addition, his successful management contracts with other entities for water and sewer services are noted. Finally, Balling himself has a Water Treatment Plant Operator's Certificate. Funds for the purchase are coming from Balling's cash reserves. The application for a CPC&N to purchase and operate the Traver system as a water public utility should be granted as set forth in the order that follows.

The application also seeks Commission authorization to continue the present rates in effect. Pub. Util. Code § 451 requires that all charges of any public utility shall be just and reasonable. In determining just and reasonable rates, it is first necessary to establish the applicable rate base. With exceptions not relevant here, historically the Commission has applied the concept of original cost less depreciation in determination of rate base value to be used in ratemaking. This involves ascertaining the original cost of the utility plant. Original cost generally means the cost of the all property used and useful at the time when first devoted to public utility service. Usually, this is obtained from the utility's books and records. But in the present situation, these books and records no longer are available.

However, by the Public Water Systems Investment and Consolidation Act of 1997 (Pub. Util. Code §§ 2718 et seq.), the Legislature has provided that the Commission "shall" use the standard of fair market value ( as set forth in Code of Civil Procedure § 1263.320)7 when establishing the rate base value for the distribution system of an acquired water corporation. In the Traver situation, the purchase price paid was $86,000, and represents "fair market" value for the assets. Accordingly, pursuant to Pub. Util. Code § 2720 (a) the rate base value of the Traver system to be used for ratesetting is $86,000,8 and this value will be entered upon the record books of the purchaser.

Traver's present rates9 produce $54,420 in annual revenues. After allowance for operating expenses, depreciation expense and taxes, the net revenue is $4,571. This represents a 5.32% rate of return (ROR) on the $86,000 rate base. This ROR is less than the 13.25% rate the Commission not uncommonly allows small Class D water utilities. However, the application seeks no present rate increase. Thus, until at some future time the utility seeks a rate increase, the present acquisition presents no immediate rate impact on the system's customers. At such time as a future rate increase is sought, staff will review all expense accounts as to their reasonableness and appropriateness. The existing rates are for the present found to be just and reasonable and should be authorized in the order that follows.

Finally, as a water public utility Balling, Inc., will now come within the purview of Chapter 2.5, Public Utilities Commission Reimbursement Fees (Pub. Util. Code §§ 401 et seq.) with the obligation to collect the fee determined pursuant to Pub. Util. Code § 431 on each customer's water bill together with the concurrent obligation for periodic remittance of these fees to the Commission.

This is an uncontested matter in which the decision grants the relief requested. Accordingly, pursuant to Pub. Util. Code § 311(g)(2), the otherwise applicable 30-day period for public review and comment is being waived.

Findings of Fact

1. Constructed in 1969, Traver from 1969 to 1990 was operated under the guise of being a mutual water system, although it did not at any time qualify as a mutual.

2. The Traver service area essentially is characteristic of a rural retirement and farm labor community.

3. Records of the water system were lost over the years; the system deteriorated as maintenance was neglected; and there was repeated non-compliance with requirements and orders of the Health Department: all leading in 1990 to the Health Department entering Superior Court to force a receivership.

4. By a 1990 Superior Court order, Traver was placed in receivership with Balling, Inc. the Court appointed receiver.

5. After eight years of receivership, and the failure of efforts to legally form a mutual entity, Superior Court ordered reconstitution of the system to be a public utility, and ordered sale of the system assets with the ultimate buyer required to comply with Health Department permit requirements and to meet requirements of the Commission.

6. At present, the Traver system provides flat rate service to residential, commercial, and church customers.

7. Under the Court supervised sale of the Traver system assets, Balling, Inc. was the successful bidder, and subject to requirements of the Health Department and the Commission, Balling, Inc. was authorized to assume ownership of the Traver system to serve the Traver community.

8. Balling, Inc. has obtained the necessary permits and approval of the Health Department to operate the Traver system.

9. Balling, Inc. by the present application seeks a CPCN to acquire and operate the Traver water system as a public utility water corporation within the jurisdiction of the Commission.

10. Balling has extensive experience in operation of the Traver system and other water systems and is otherwise well qualified to own and operate a public utility water system.

11. There are no protests to the application and RRB recommends that the CPCN be granted.

12. Balling, Inc. requests that the present flat rates be continued without change.

13. The purchase price of $86,000 was the low and successful bid for the system assets under the Court ordered and supervised sale.

Conclusions of Law

1. Approval of the application would finally define and establish the legal status of the Traver water system as a public utility.

2. As Balling, Inc. is well qualified to own and operate the Traver system, the requested CPCN should be granted as being in the public interest.

3. The present flat rates set forth in footnote 9 of the Opinion are just and reasonable under the circumstances pertaining at present, and should be authorized as requested.

4. The fair market value purchase price of $86,000 meets the requirements of Pub. Util Code §§ 2718 et seq. and should be recorded on the books of the utility as of the date of the Order that follows as the rate base to be used in future ratesetting proceedings.

5. A public hearing is not necessary.

6. This proceeding should be closed.

ORDER

IT IS ORDERED that:

1. A Certificate or Public Convenience and Necessity is granted to Tito Balling, Inc. (Balling, Inc.) to acquire and operate the Traver water system serving the community of Traver in Tulare County.

2. Balling, Inc. is authorized to continue the flat rates set forth in footnote 9 of the Opinion portion of this Decision, and shall within 30 days after the effective date of this order file a rate tariff reflecting these rates and in the form prescribed by General Order 96-A.

3. Balling, Inc. shall, within 30 days after the effective date of this order, file a tariff service area map (to a scale of approximately 1 inch equals 100 feet) clearly indicating the boundaries of the Traver system.

4. Balling, Inc. shall set up formal books of account in conformance with the Uniform System of Accounts for Class D water utilities as prescribed by this Commission.

5. Balling, Inc. shall record on its books of account the sum of $86,000 as being the rate base to be used in future ratesetting proceedings.

6. Within 30 days of the effective date of this order, Balling, Inc. shall initiate and work with the Advisory Branch of the Water Division to establish a complete tariff, including rules, forms, etc. for the water system.

7. Application 99-07-049 is closed.

This order is effective today.

Dated July 6, 2000, at San Francisco, California.

Commissioners

3 A mutual water corporation or association is one organized for the purpose of delivering water to its stockholders or members at cost, and one delivering water to no one except its stockholders or members, or to certain other designated public or governmental agencies. A mutual is not subject to the jurisdiction, control or regulation of the Commission. (Pub. Util. Code § 2705.) 4 The Traver system basically serves a low income farm, farm laborer, or retired persons community. There are 171 residential, 4 market, and 5 church connections. 5 As relevant here, Pub. Util. Code § 2701 provides that any person, firm, or corporation, their court appointed receivers, owning, controlling, operating, or managing any water system selling water to any persons is a public utility, and is subject to the jurisdiction, control, and regulation of the Commission. 6 A copy of this April 10, 2000 letter is in the formal file of this proceeding. 7 § 1263.320. Fair market value 8 As the "fair market" value purchase price of $86,000 does not approach, much less exceed, the reproduction cost less depreciation cost (as defined in Evidence Code § 820) of $135,000 (obtained by the appraiser pursuant to order of the Court), the need to consider Pub. Util. Code § 2720(b) issues is obviated. 9 Current Rates

Customers Number Per Month Annual
Residential 171 $25 $51,300
Business 4 40 1,920
Churches 5 20 1,200
Totals 180   54,420

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