IV. CPCN Requirements
The provisions of the Public Utilities Code (Pub.Util. 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 by Del Oro before a CPCN may be granted in this proceeding.
A. Statutory Requirements
The Pub.Util. 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, Del Oro affirmatively seeks public utility status for a water system serving a new housing development near Shingletown. Del Oro's application indicates it will provide water to a total of 132 customers once the development is completely built out. Del Oro proposes that this water service be provided under rates approved by the Commission. Under the substantive law, Del Oro will operate as a public utility for the Mt. Lassen water system.
The Pub.Util. Code also includes several procedural requirements. Section 1004 requires that an 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.5
In its application, Del Oro has provided its Certification of Incorporation filed with the State of California Secretary of State, dated July 29, 1963, as well as Certificates of Status-Domestic Corporation with the State of California Secretary of State dated February 5, 1997 and June 9, 2006.
On January 1, 2008, Del Oro received a Temporary Conditional Permit for a Small Community Public Water System from the SCDRM to provide service to the Mt. Lassen water system. The SCDRM requires Del Oro to comply with eighteen conditions before it may receive a final water permit.6 Since the permit received by Del Oro is temporary and conditional, and consent of the local public agency is required by Pub. Util. Code in order to issue a CPCN, this CPCN will be issued conditional on the receipt, by Del Oro, of a Final Permit for a Small Community Public Water System from the SCDRM. Del Oro must provide a copy of this permit to the Director of the Commission's DWA within 30 days of receipt.
Section 1002(a) 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. In its application, Del Oro provided the CEQA Mitigated Negative Declaration (MND), issued by Shasta County to Emmerson, in support of its compliance with § 1002(a). Since the CEQA MND addresses the issues detailed in § 1002(a), it satisfies the requirements of this section of the Pub. Util. Code.
B. Rules of Practice and Procedure
Rules 3.1 and 3.2 set forth requirements that must be satisfied as part of an application for a CPCN and to authorize rates. The relevant requirements of Rule 3.1 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 3.1 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 3.1(e), or in this case, the operation of the proposed system as a public utility.
Rule 3.2 requires more specific financial information justifying rate increase applications.
Del Oro has complied with Rules 3.1 and 3.2 by providing a description and map of the new system, the 2006 balance sheet and income statement for the consolidated utility as well as for each individual district operated by Del Oro, and information necessary to set rates and determine the necessity of a CPCN and the operation of this entity as a public utility. Del Oro's consolidated financial statements show both 2005 and 2006 as profitable years, indicating that it is a financially viable utility. Subsequent to filing its application, Del Oro submitted its 2007 Annual Reports to the Commission. The 2007 Annual Reports illustrate that Del Oro had another profitable year in 2007.
To a data request and follow up questions, Del Oro responded that no other private or public water system besides Del Oro was contacted by the developer regarding provision of water service to the Mt. Lassen development. 7 Del Oro pointed out that there are three private systems nearby that serve their own residents (a mobile home park 0.1 miles away; a KOA campground 1.1 miles away; and a residential subdivision 2.1 miles away), but the developer determined that these systems could not serve the Mt. Lassen development. Del Oro also stated that there are no public water systems within 15 miles of the Mt. Lassen system.
The information that Del Oro provided in the application and data responses demonstrate that public utility regulation is necessary to safeguard a small number of future customers who would have no water supply alternatives, and to ensure reasonable and fair rates for both the ratepayers and the company.
The evaluation of the proposed rates is set forth later in this decision.
C. Resolution M-4708
The Commission, in Resolution M-4708, set forth criteria that are used to evaluate the applications of small water companies (Class D companies, i.e., those serving less than 500 customers). The criteria are applicable to the proposed subdivision, which will serve 132 customers when fully built out. 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. Del Oro has satisfied all of Resolution M-4708's relevant criteria under present circumstances.
As discussed in the previous sections, Del Oro has demonstrated: 1) its ability to provide water service based on its experience as a regulated water distribution utility and receipt of a Temporary permit for the current requested operations; 2) its financial viability, based on the financial stability of its existing utility operations; and 3) the lack of potentially viable public or private water providers nearby that would be able to serve the Mt. Lassen service area.
If rates are established in the manner discussed later in this decision, see Part VI, Del Oro can be a viable, self-sustaining utility. These rates are required in order to provide adequate service for a small system while allowing Del Oro a reasonable opportunity to earn a fair rate of return.
5 Public Utilities Code § 1004. Before any certificate may issue, under this article, a certified copy of its articles of incorporation or charter, if the applicant is a corporation, shall be filed in the office of the commission. Every applicant for a certificate shall file in the office of the commission such evidence as is required by the commission to show that the applicant has received the required consent, franchise, or permit of the proper county, city and county, city, or other public authority.
6 Shasta County Department of Resource Management - Environmental Health Division, Temporary Conditional Permit dated January 3, 2008; attached document titled Water System Temporary Conditional Permit for Mount Lassen Woods - #4500338, includes 18 conditions.
7 Response to DR A0801019-004 (04/19/08), and e-mailed follow-up questions (04/22/08).
