Discussion

The SDWBA Loan Restructuring

In April of 1999, DWR agreed to a restructure of the SDWBA loan as a solution to the problem. Had Greenbelt made its semi-annual payments as called for by its original loan agreement, the principal balance as of January 1, 1999 would have been $89,222.37. DWR agreed to forgive the missing unpaid principal of $23,878.82 and the missing unpaid interest of $15,969.36. The $89,222.37 principal balance will be amortized over 10.206 years, with semi-annual payments of $6,304.24 due starting July 1, 1999. McAllister is seeing that the Fiscal Agent makes these semi-annual payments.³ The new amortization schedule is in Appendix A to this decision.

When a SDWBA loan surcharge is initially determined and ordered by the Commission, the surcharge is set slightly in excess of the amount calculated as needed for accumulation to meet the semi-annual payment the utility must remit to DWR in order to pay the interest and principal due. As a result, a surplus accumulates. And as over time additional customers are added in the water system, their surcharge payments add to that surplus. In the usual case, toward the end of the loan period, this accumulated surplus is sent to DWR to pay off the terminal balance of the loan early.

With reference to Greenbelt, as nearly as our staff is able to reconstruct and estimate, at the time of diversion of the funds, this accumulated surplus should have been $32,399.23 as of December, 1999. These funds were trust funds belonging to Greenbelt, they were not the property of the ratepayers. But unless some recovery is obtained from the Cavanaugh Estate or Mrs. Cavanaugh, as the owner of Greenbelt, such surplus funds will not be available for an early payoff of the loan in the final months of the loan period.

Since 1998, the Consumer Protection Unit of the Santa Cruz County District Attorney's office has pursued the unlawful business practice suit it initiated against the Cavanaugh Estate and Mrs. Cavanaugh. This resulted in a stipulated judgment for $55,700 in Superior Court before Superior Court Judge, the Honorable Robert B. Yonts, Jr. Although some of the small land parcels held by the Estate were sold in March, 2000 for taxes, a number remain and will be sold. Additionally, the Cavanaugh home although mortgaged, can later provide additional funds. The return from these sales should go to the trust account to at least partially replace the $32,399.23 that was unlawfully diverted by the Cavanaughs.

In the apparent unlikely instance that more than the $32,399.23 needed to replenish the Greenbelt trust account can be recovered, any excess up to the judgment limit should be remitted to DWR to replace the up to $39,848.18 DWR forgave on the SDWBA loan E51038 to Greenbelt.

Other Matters

The long term successful operation of Greenbelt depends upon securing a new owner-operator. The cost of receivership would place added burdens upon the ratepayers while merely delaying the basic issue. The Mills-McAllister combination has done a commendable job in holding things together the past several years. They have expressed their interest in acquiring the system if they can obtain some protection against prior obligations incurred by the Cavanaughs other than the remainder of the DWR SBWBA loan. They have regularly met the system's DWR payments and have the technical and managerial abilities to run the operation. The Commission encourages them, suggesting they form a corporation to acquire Greenbelt and to limit liability. We are led to understand that the Estate and Mrs. Cavanaugh would sell their proprietary interest to the two for a token legal consideration. The Chief of the Commission's Water Advisory Branch should be directed to provide advisory and technical assistance if Mills and McAllister are willing to proceed expeditiously. If they do not proceed and file an appropriate application within a reasonable period, it will be necessary that the Chief of the Branch recommend to the Commission that we consider seeking appointment of a receiver to take over the operation, however costly and burdensome this might be to the ratepayers.

It has been brought to the attention of the Commission that a 40,000 gallon riveted steel tank, one of three storage tanks (total storage capacity 162,000 gallons) in the system is in urgent need of replacement. The replacement cost is estimated to be approximately $40,000. The general rate increase granted Greenbelt by D.97-10-021 issued October 9, 1997 included provision for a System Improvement Account of $4,800 annually. Over the past two-and-a-half years about $12,000 has been thus earmarked. Approximately $9,000 has been spent for two electric control systems, repair of two pumps, repair of several major line breaks, and to seal a well as required by the County. The account currently has about $3,000.00.

Greenbelt's plant assets are already pledged against the SDWBA loan. The system is in a difficult financial position to borrow funds to replace the tank. Accordingly, while with the assistance of the Chief of the Water Advisory Branch, Greenbelt should make every effort to seek a commercial loan and continue processing its application to DWR for funds to replace the tank, the funds to replace the tank or to repay any loan must still be generated from revenues or surcharges. The current balance in the System Improvement Account and allocations from revenues to the account for the immediate future should be carefully retained for use toward a tank replacement, with only the most urgent necessary repairs to be performed. The Director of the Water Advisory Branch should also be directed to assist Mills-McAllister to expeditiously file for authorization to institute a $20 per month per customer surcharge to accumulate funds to be held in the System Improvement Account for replacement of this tank.

No further matters being deemed relevant to this proceeding, no further hearing is necessary, and the investigation should be closed.