ALJ/PAB/TJS/hkr * Mailed 12/3/2001
Decision 01-11-064 November 29, 2001
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Joint Application of Southern California Water Company (U 133 W) and Peerless Water Company (U 335 W) for Approval of a Plan of Merger of Southern California Water company and Peerless Water Co. |
Application 00-05-043 (Filed May 22, 2000) |
Patricia A. Schmiege, Attorney at Law, for Southern California Water Company and Peerless Water Company, applicants.
June Ailin, Attorney at Law, for City of Bellflower, and John Cavanaugh, Attorney at Law, for Cities of Paramount & Lakewood, interested parties.
Peter G. Fairchild, Attorney at Law, for the Office of Ratepayer Advocates.
OPINION DENYING APPLICATION
TABLE OF CONTENTS
Title Page
OPINION DENYING APPLICATION 2
Summary 2
Procedural History 3
Background 4
Peerless' Reasons for Merging with SCWC 5
SCWC's Reasons for Merging with Peerless 9
Merger Terms 9
Modified Terms per Settlement Agreement 13
Public Participation 15
Applicants' Arguments in Favor of Settlement Agreement 15
ORA's Initial Opposition and Later Support of Merger 22
Opposition of Cities 23
Discussion 33
Comments on Proposed Decision 42
Findings of Fact 44
Conclusions of Law 47
ORDER 48
Summary
The joint motion of Southern California Water Company (SCWC), Peerless Water Company (Peerless), and the Commission Office of Ratepayer Advocates (ORA) to approve a two-party settlement is denied because the plan of merger is unreasonable and not in the public interest. The settlement recommends approval of the proposed merger. The proposed merger includes the acquisition of Peerless by SCWC, placing water rights at market value into rate base, embarking on an $11.5 million improvement plan with $2.64 million invested in the first five years, and the ultimate consolidation of Peerless with SCWC's Metropolitan District.
We conclude that the settlement agreement does not meet the criteria of being reasonable in light of the entire record, in the public interest and consistent with applicable law. While SCWC is financially and technically qualified to assume utility service, these factors are outweighed by the burdens of a proposed 857% increase in rate base and subsequent dramatic rate increases arising from the capital improvement program and integration into SCWC's Metropolitan District. The proposed merger also results in duplicative, wasteful facilities. Equally qualified, financially capable, and willing alternative providers currently have connections with Peerless' eight dispersed service territories, and are capable of serving these customers without the expense of additional connections and at a reduction in existing rates.
On balance, we conclude that the degree of rate increases and duplication of facilities caused by the proposed merger are, in fact, harmful to the public. Moreover, Peerless is not a utility water system in need of take-over to provide adequate service. Finally, the merger proposal is not one which achieves the economies of scale promoted by the Public Water Systems Investment and Consolidation Act of 1997.
