II. BACKGROUND

Commission Proceedings and Actions

In 1958 an area about 20 miles east of Red Bluff in Tehama County was subdivided as Ponderosa Sky Ranch. (McCrea declaration, para. 2). Orville A. Figgs, Sr. and Katherine Figgs acquired the subdivision prior to 1964. (McCrea declaration para. 3). On September 23, 1969, three customers filed a formal complaint, C.8970, alleging that PSR was a private water company not operating under the CPUC's jurisdiction. (McCrea declaration para. 4). On March 31, 1970, the Commission issued Decision 77019 declaring PSR a public utility subject to Commission regulation and setting PSR's rates. (McCrea declaration, para 5 and Exhibit 1 of McCrea declaration). In September of 1997, ownership of PSR

transferred from Orville A. Figgs, Sr. to Orville A. Figgs, Jr. and Kevin Figgs. (McCrea declaration, para. 30).

PSR has received two informal advice letter general rate increases since 1970, one in 1977 and one in 1982. (McCrea declaration, para. 7). In the 1982 rate case, resolution number W-3022 authorized a 99% increase of $9,040 providing an 11.7% return on rate base, an annual revenue requirement of $18,170 and net revenues of $4,100. (McCrea declaration, para. 8, and exhibit 2). At that time the utility served 76 metered and 6 flat rate customers. A review of the records found that the 1997, 1998, 1999, and 2000 Annual Reports have not been filed, but the 1996 report shows the utility serving 80 customers. (McCrea declaration, para. 10). It appears that PSR is currently providing water to only slightly more customers than it had in 1982, at rates set 20 years ago.

Beginning in 1998 to the present the Consumer Affairs Branch of the Consumer Services Division has received complaints from PSR's customers about irregular billing. One consumer complained of receiving one bill for the period October 1998 to October 1999. (McCrea declaration para 11). CAB requested that PSR respond to these complaints but PSR has not provided a response to date. (McCrea declaration, para. 12). On November 27, 2000, Dean Evans, Director of the Water Division, sent a letter to PSR again requesting that PSR respond to the CAB complaints. (Exhibit 3 to McCrea declaration). The letter also informed PSR of its non compliance with DHS's orders to file annual reports and send its customers the consumer confidence report as required by Federal law. PSR has not responded to Mr. Evans' letter to date. (McCrea declaration, para. 14).

In February 2001, Ponderosa Sky Ranch Homeowners Association (PSRHA) communicated with the Water Division (Division) stating PSRHA had received numerous complaints from its members who are customers of PSR. The complaints were about the irregular billing practices of PSR. The customers complained specifically that several quarters would pass without a bill from PSR. When the bill did arrive it required immediate payment for the quarter or quarters that had not been previously billed. (McCrea declaration, para. 15).

On March 1, 2001, the Division sent a letter to Figgs describing the customer complaints and requesting a report on how the utility planned to work with customers who were unable to pay bills that were higher than they would normally be due to PSR's irregular billing practice (Exhibit 4 to McCrea declaration). The letter cautioned if PSR "does not respond, to this request, the Division will recommend that the Commission initiate a formal investigation into the operation and billing practices of PSRWC. Any violations found in the investigation could result in fines and penalties."

On April 9, 2001, PSR sent a letter to the Division requesting emergency rate relief due to the recent PG&E rate increase. (Exhibit 5 to McCrea declaration). PSR requested that rates be increased by 250% but did not incude justification for the request other than a copy of a PG&E bill. The letter did not contain any calculations showing how the bill related to the rate increase. A second letter of the same date responded to the March 1, 2001, letter from Dean Evans and requested additional funding for a full-time office manager and a full-time secretary, claiming that the customers had requested these additional employees. (Exhibit 6 to McCrea declaration). Because many years had passed since the last GRC, and because PSR had not filed annual reports, on May 4, 2001, McCrea sent Figgs a letter requesting PSR fill out and send in an Informal Rate Change Workbook (a two page listing of present expenses and facilities in use). (Exhibit 7 to McCrea declaration). McCrea supplied the workbook to the utility, so that the Division could do a general rate case and design proper rates. PSR responded partially. (McCrea declaration para. 20). The Division offered to assist the utility in filling out the remaining workpapers but PSR has been non-responsive to this offer. (Exhibit 8 to McCrea declaration).

On November 1, 2001, the Division received word from Figgs that PG&E was going to cut off power to the well pump because PSR had not paid its electric bill since the previous July. (McCrea declaration, para. 22). Later the Division heard that PG&E had cut off the power. On that same day the Division received calls from customers that they were out of water. (McCrea declaration, para 23). The Division attempted to contact PG&E to get power turned back on, by going through the Commission's Customer Affairs Branch (CAB). The effort was unsuccessful. Finally the Director of the CPUC Energy Division contacted PG&E and the power was turned back on. (McCrea declaration para. 24).

Apparently PSR was unable to pay its electric bill because Figgs had not been reading meters and billing customers, and therefore had no cash to pay the bills. Figgs reported to Water Division that he asked his customers to give him some cash as an advance on the future water bills and that he used that cash to pay PG&E. (McCrea declaration, para. 25).

Figgs represented to the Division that he was committed to making payments to bring the PSR electric bill current. Based on this commitment, the Division was able to secure PG&E's agreement to a payment plan. (McCrea declaration, para. 26). The payment plan was reduced to writing in a letter by CAB to PSR. (Exhibit 9 to McCrea declaration). Pursuant to the payment plan, Figgs agreed to:

Pay $1,500 by 11-16-01

Pay $3,400 by 11-25-01

Pay 1/3 of the balance remaining (~$2,600 + current) by 12/25/01

Pay 1/3 of the balance remaining by 1/25/02

Pay the final 1/3 of the balance remaining by 2/25/02

PG&E also wanted a $4,000 deposit since they had to turn PSR off and then back on again. Although Figgs did not agree to this, and probably did not have sufficient funds for the deposit, PG&E agreed to keep PSR's service turned on.

Despite Figgs commitment to the above referenced payment schedule, he has failed to adhere to it. McCrea has attempted to contact Figgs by telephone but Figgs has not responded to any voicemail messages to date. (McCrea declaration, para. 28). On February 21, 2002, McCrea visited Figgs house to determine the status of the water system's financial condition and to provide assistance if necessary. The television set was on and the house seemed occupied, but no one answered the door. (McCrea declaration, para. 29). On March 7, 2002, McCrea sent a letter by certified mail to Figgs noting that he had left messages on Figg's answering machine, but had not received a call back. The letter requested that Figgs contact the Commission within 10 days. (Exhibit 8 to McCrea declaration). No response has been received. (McCrea declaration, para. 30).

B. Department of Health Services Proceedings and Actions

Respondents have a history of non-compliance with Department of Health Services (DHS) Rules and Orders. A chronology of PSR's non-compliance is set forth in paragraph 30 of the declaration of Donald McCrea. Briefly the water system has consistently failed to meet bacteriological standards, file annual reports and conduct the required monitoring of the system beginning in 1994 to the present. Figgs owes $2,217.31 in outstanding fees and penalties to DHS.

C. Tehama County Tax Collector Proceeding

Respondents have apparently failed to pay the property taxes for seven years for the parcel where PSR's source of supply well is located. The County Tax Collector apparently intends to auction the property on May 17, 2002, because of Figgs' failure to pay property taxes. (McCrea declaration, para. 31 and exhibit 10).