6. Protests
Protests were filed by Protestants Santa Clarita Organization for Planning the Environment (SCOPE) and Friends of the Santa Clara River (The Friends). Although neither party requested hearings, both requested that the public interest and the interest of Valencia`s customers be protected from approval of any change in ownership of Valencia. Customer protection issues raised by Protestants were: (1) ownership information; (2) Commission authority prior to transfer of indirect control; (3) affiliated interest rules; and (4) financial wherewithal. As addressed in the following four sections, these issues do not provide reasons for us to deny the application.
6.1. Ownership Information
Protestants took issue with Applicants not disclosing financial statements, management operating statements, and individual owners of the upstream holding companies involved in the overall indirect control of Valencia. Absent such disclosure, Protestants contend that the financial wherewithal and contractual commitment to provide for water quality improvements and remediation facilities by Valencia is not known, and that the ladder of holding companies acquiring Valencia is not known. Protestants further contend that the lack of additional ownership disclosures of the layers of holding companies will not enable us to ensure that water company assets are not used for purposes other than those designated as proper for Valencia.
Applicants have provided Valencia's most recent financial statements.10 Financial statements of the holding companies acquiring an indirect control of Valencia are not needed in this instance. This request for ownership information of entities having and seeking an indirect ownership interest of Valencia is not new. As we previously concluded in the 2007 Decision and D.05-08-017, regardless of the operating arrangements among the upstream owners of Valencia, the Commission retains complete authority over Valencia's public utility operations, including its rates, as well as substantial power to do all things necessary and convenient in the exercise of its jurisdiction. While the owners may have their agreements, the Commission has final authority over any public utility effects in California. Therefore, the requested additional ownership information issue is not necessary.
6.2. Commission Authority Prior to Transfer of Indirect Control
The Friends object to what they believe is a transfer of indirect control of Valencia prior to obtaining Commission authority as required by § 854.
Although the Plan expressed a view that a § 854 application would not be required for authorization of changes in the indirect ownership of Valencia, the Plan provides that, if the Commission determines that the effectiveness of the Plan is an acquisition or change in control subject to its approval under § 854(a), Newhall Holding and Newhall Intermediary are precluded from asserting operational control of Valencia until an application pursuant to § 854(a) has been filed and the Commission has issued a final decision on the application.11
Subsequent to the July 31, 2009 effective date of the Plan, Valencia's regulatory counsel opined to Applicants that an application seeking authority to change indirect control of Valencia was required pursuant to § 854(a) and filed the application before us. In their reply to the protest, Applicants state that the two new entities created under the Plan, Newhall Intermediary and Newhall Holding, have in fact refrained from exercising operational control over Valencia pending this decision.12 We conclude that no change in indirect control of Valencia has yet occurred. Approval of that transfer of indirect control is the subject of this decision.
6.3. Conditions of Approval and Affiliated Interest Transaction Rules
SCOPE and The Friends also protested the application to ensure that previous conditions imposed by the Commission on Valencia and its affiliates are included in any approval of this application.
Applicants have already stated in their application that they are committed to complying with all of the conditions of approval and the affiliated interest transaction rules imposed on Valencia and its affiliates as a condition of approval of granting prior changes of indirect control of Valencia pursuant to D.04-01-051, as modified by D.05-08-017 and the 2007 Decision.13 To further ensure compliance by the entities that this decision authorizes to exercise indirect control, we will require each of those entities to file written notice of their agreement, evidenced by a duly authenticated resolution of their respective Boards of Directors, Board of Managers, or the equivalent authority, to the Conditions of Approval of Transfer of Control and the Affiliated Interest Transaction Rules set forth in Appendices B and C to this decision. Furthermore, we put applicants on notice that the Affiliated Interest Transaction Rules are subject to modification in the Commission's Rulemaking 09-04-012 opened on April 23, 2009 to develop standard rules for the use of regulated assets for non-tariff services of water utilities.
6.4. Financial Wherewithal
The Friends expressed concern about Valencia having "financial wherewithal" to ensure protection of ratepayers and the public with respect to financial and health concerns relating to ammonium perchlorate in the local groundwater basin. This is because even though the Castaic Lake Water Agency (CLWA) has continually promised that ammonium perchlorate remediation facilities will be operating "next year" since 2003, those facilities are still not completed.14
Applicants emphasized in their response to the protests that Valencia is not CLWA. CLWA is a local wholesale water agency that provides water to Valencia, a retail water purveyor that has been working cooperatively with CLWA and other retail purveyors to achieve remediation of the perchlorate problem and financial compensation for related costs. In that regard, Valencia replaced a perchlorate-contaminated well in 2005. In that same year, Valencia installed wellhead treatment at a second affected well in 2005 with funds provided by parties responsible for the contamination.15
CLWA, Valencia, and other retail purveyors achieved a settlement of litigation in 2007 with the responsible parties providing long-term funding for remediation and compensation. The ratemaking treatment of those funds applicable to Valencia will be considered as part of Valencia's January 2010 General Rate Case (GRC) filing.16
The existence of contaminants in the water of Valencia's customers is of great concern to the Commission. However, this proceeding seeking authority to transfer indirect control of Valencia is not the appropriate place to address water contaminants. Protestants should consider raising their contaminants issue in Valencia's 2010 GRC.
By this decision, as in prior transfer of indirect ownership interest proceedings of Valencia, we are imposing financial conditions to help ensure that Valencia has adequate financing. Hence, the financial wherewithal issue has been sufficiently addressed. These conditions are found in the Conditions of Approval of Transfer of Control and Affiliate Interest Transaction Rules attached to this decision as Appendices B and C, respectively. Among the more important financial conditions are: (1) owners, direct and indirect, of Newhall Land and Farming shall ensure that Valencia has adequate capital to fulfill all of its public utility service obligations; (2) the transfer of control may not adversely affect Valencia policies with respect to service to customers, employees, operations, financing, accounting; capitalization, rates, depreciation, maintenance, or other matters relating to the public interest or utility operations; (3) none of the outstanding debt owed and recorded as liabilities on the regulated books of Valencia may be adversely affected by the transfer of control; and (4) debt of Valencia's affiliated companies shall not be issued or guaranteed by Valencia without prior approval by the Commission.
10 Application, Appendix 7.
11 Exhibit A to Application, Paragraph T, Article VIII at 55.
12 Reply to Protests, December 3, 2009 at 12.
13 Application at 12.
14 The Friends Protest at 4.
15 Reply to Protests, December 3, 2009, at 13 and 14.
16 Id.
