3. Summary of Dispute

The facts are not in dispute.

The water system serves the community of Paradise in Butte County. It previously was operated by the Lime Saddle Community Services District, a public entity not subject to the jurisdiction of this Commission. Because the district's five wells are inadequate to serve existing customers, the district purchased supplemental water from the Stirling Bluffs Corporation, a subsidiary of Del Oro. The purchased water was wheeled from Stirling Bluffs through the Paradise Irrigation District.

Del Oro in 1990 acquired the water system, including the district's right to an annual allotment of 200 acre-feet of water from Lake Oroville. Lake Oroville water was not available, however, because no facilities existed to bring it to Lime Saddle. Del Oro continued to purchase water under the agreement with Stirling Bluffs and Paradise Irrigation District.

The agreements with Stirling Bluffs and the irrigation district can each be terminated on five years' notice. Moreover, both Stirling Bluffs and the irrigation district can refuse to supply water if the needs of their own customers so require. Because of the uncertainty of the water supply, the Department of Health Services (DHS) limited the number of Lime Saddle District connections to a maximum of 440. At the time of acquisition by Del Oro, the district was serving 259 customers. DHS encouraged the district to devise a way to tap the Lake Oroville water.

In 1990, Del Oro retained engineers to design a project to interconnect the Lime Saddle system with Lake Oroville. The completed design envisioned a project that would replace the Stirling Bluffs water with Lake Oroville water and would permit the district to serve up to 861 connections. Cost of the project was estimated at $2.8 million.

Del Oro decided to finance the Lake Oroville project by imposing a $5,000 charge on each new residential connection. The charge was determined by dividing the required $2.8 million by the approximately 600 new customers that could be served with the new source of water. Beginning January 1, 1991, Del Oro imposed the charge on new customers through a water main extension agreement that Del Oro asserts is permitted by Rule 15, its water main extension tariff.

At hearing, Del Oro's president Robert Fortino testified that the company has imposed the fee on 19 new customers who requested approximately 190 connections. Breuer, which planned to construct 100 homes in the area, paid some $500,000, and other developers paid fees in the $100,000 range. According to the staff audit, Del Oro at the end of 1999 had collected $865,852 (before taxes, and not including interest) in contributions. Fortino testified that approximately $700,000 has been spent on Lake Oroville project facilities. These include a 1.5-million-gallon storage tank, 4,000 lineal feet of 10-inch transmission main, upgrades to a treatment plant, and land acquisition for planned booster stations. Fortino said that Del Oro plans to seek a low-interest state loan and to complete the Lake Oroville intertie in the near future.