6. Comments on Proposed Decision

The proposed decision in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Commission's Rules of Practice and Procedure. No comments were received.

Findings of Fact

1. The Federal Tax Reform Act of 1986 required, for the first time, that utilities include in their federal taxable income CIAC that they collect from developers.

2. The inclusion of CIAC in a utility's taxable income increases its income taxes and reduces after tax funds available to the utility and its ratepayers.

3. D.87-09-026 was intended to set forth procedures which, when applied, would cause the consequences of including CIAC in taxable income to be revenue neutral.

4. Conclusion of Law 12 in D.87-09-026 incorporated a methodology for the "gross-up" of CIAC that was intended to make CIAC revenue neutral to the recipient utility.

5. On February 23, 1988, Castlerock signed non-refundable Main Extension Contracts with Toro and Cal Utilities that required Castlerock to pay contributions in the amount of $354,790 for the Cal Utilities extension, and $153,736 for the Toro extension. These contracts contained notices that any disputes could be referred to the Commission.

6. In addition to the CIAC, Castlerock paid Cal Utilities $182,717 as the "gross-up" Cal Utilities stated was necessary to render the CIAC revenue neutral.

7. Adcock, an individual, is not a "public utility" for purposes of the complaint procedure set out in Pub. Util. Code § 1702 et seq.

8. At the time of the filing of the complaint, Breiholz had no interest in Castlerock or in either of the Main Extension Contracts.

9. Pub. Util. Code § 736 provides a three-year statute of limitations for claims brought before the Commission.

10. Castlerock's claims for reformation were filed more than three years after the contracts were signed with Toro and Cal Utilities.

11. Castlerock's gross-up refund claim against Cal Utilities accrued on May 9, 1989, when the 1988 Cal Utilities Annual Report was filed with the Commission, less than three years before the refund claim was filed on April 28, 1992.

12. At the request of the parties to this proceeding, the Commission reviewed D.87-09-026 and issued D.96-10-037 clarifying its prior decision.

13. Cal Utilities utilized Method 2 described in D.87-09-026 to collect its gross-up on the Castlerock CIAC.

14. Toro employed Method 5 described in D.87-09-026 to collect its gross-up on the Castlerock CIAC.

15. Pursuant to D.96-10-037, utilities using Method 5 are not subject to any claims for refund of CIAC gross-up amounts; consequently, Toro is not subject to Castlerock's claim for a refund of CIAC gross-up payments.

16. Cal Utilities calculated the gross-up it collected from Castlerock in 1988 by applying the applicable marginal tax rate to the sum created by adding Castlerock's CIAC and gross-up contribution total of $537,507 to taxable income loss of $31,254.

17. The methodology Cal Utilities used to compute the payments collected from Castlerock conformed to the approved methodology in D.87-09-026, as modified by D.96-10-037.

18. The information necessary to calculate Castlerock's contribution was all obtained from Cal Utilities' Annual Report.

19. As the methodology prescribed by D.96-10-037 does not depend on the actual taxes paid by a utility or on information from its income tax returns, the income tax returns are not relevant to any issue in this case.

20. Cal Utilities does not owe any refund to Castlerock for the gross-up payments made by Castlerock on account of the 1988 CIAC contracts.

Conclusions of Law

1. Castlerock's request to reform the two contracts to be "refundable" should be denied because it was made after the expiration of the applicable limitations period.

2. Castlerock's claim for a refund of its CIAC gross-up was made within the applicable limitations period.

3. Breiholz should not be allowed as a complainant, because at the time of filing the complaint he had no legal interest in Castlerock or either of the contracts at issue.

4. Adcock should be dismissed as a defendant, since he is an individual and not a public utility.

5. Toro should be dismissed as a defendant, since D.96-10-037, which clarified D.87-09-026, specifically limited refund provisions to those utilities that elected Method 2; Toro elected and applied Method 5.

6. The complaint for a refund by Cal Utilities should be dismissed effective immediately because Cal Utilities properly applied the method prescribed by D.87-09-026 as modified by D.96-10-037 and properly computed the amount due.

ORDER

IT IS ORDERED that:

1. Case 92-04-034 is dismissed as to all defendants.

2. Case 92-04-034 is closed.

This order is effective today.

Dated October 24, 2002, at San Francisco, California.

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