5. Proposed Settlement Terms

Applicants and DRA proposed that the Commission approve the transaction and, as a part of that proposal, offer specific conditions intended to protect the public interest. We find these terms reasonable and adopt the settlement.

A review of the terms of the proposed settlement (Attachment A) indicates that DRA was concerned with preserving regulatory oversight, avoiding any additional costs accruing to customers because of the merger, and the ongoing reasonable operation of both Park and Ranchos. The proposed settlement, which we adopt, is attached to this decision.

The proposed settlement, among other issues, addresses preserving or protecting for the ratepayers' benefit the water rights held by Ranchos. We discuss water rights elsewhere in greater detail where we independently emphasize in our order that those rights are unaffected by the transfer of control and that we retain and will exercise our full jurisdiction over those water rights. The proposed settlement also addresses the continued application of the Commission's existing affiliate rules, and other regulatory policy matters which will continue to apply to Park, Ranchos, and the proposed owner, Carlyle. We emphasize that nothing about the proposed settlement in any way limits the applicability of our previously adopted regulatory policies or reduces our oversight or our ability to adopt new or revised policies for any of these matters.

The settlement arguably imposes no new obligation or duty on Park or Ranchos and therefore we need not recite the various terms in this order or discuss them further. It does however demonstrate Carlyle is fully aware of and acknowledges the ongoing applicability of the regulatory practices and policies alluded to in the settlement. We find the terms reasonable and in the public interest. We find that nothing in the terms restricts this Commission's ongoing oversight or authority.

Nothing requested in this application, or contained in the settlement, will increase rates to customers. Both Park and Ranchos will continue to provide service under the terms and conditions of their existing tariffs. Rates for Park and Ranchos will only change pursuant to the Commission's review of subsequent rate applications and advice letters.

Beyond the undertakings of the application and the settlement, we find that it is necessary in light of the controversy described below, to add as a condition of approval that Carlyle cannot encumber, diminish, or cause a loss of Ranchos' existing water rights in the Mojave Basin without specific authority from this Commission.

Ranchos holds water rights in the Mojave basin, subject to a water master and court adjudication. Specifically, the Mojave Water Agency is a water agency created by California statute (the Mojave Water Agency Act) and has been appointed Watermaster by the Riverside Superior Court to "administer and enforce" an amended Judgment in the Mojave Basin Adjudication (City of Barstow v. City of Adelanto, Riverside Superior Court Case No. 208568). Town argues the rights may be either lost due to the transfer under the terms of the controlling court order, or that Carlyle might try to sell the rights and then charge customers for higher cost replacement water.

Town is concerned that the water rights held by Ranchos could be legally at risk because of the complex settlement applicable to water rights in the Mojave basin. Loss or impairment of the rights would inevitably lead to significantly higher costs for replacement water or even a permanent loss in available water. Applicants counter that there is no reasonable likelihood that the transfer of control, where the utility would continue in uninterrupted operation, would impair or result in the forfeiture of the water rights.

By ruling dated March 24, 2011, the Judge directed the applicants to contact the legal counsel to the Mojave Water Agency to seek an opinion letter. The intent of the ruling was to have the opinion of Mojave Water Agency's legal counsel on the following questions:

1. Is there any provision in the Judgment or the Mojave Water Agency Act by which the Transaction will constitute a transfer of Ranchos' water rights?

2. Is there any provision in the Judgment or the Mojave Water Agency Act, or any other reason, that would require approval by the Mojave Water Agency for the Transaction to be effective?

3. Is there any provision in the Judgment or the Mojave Water Agency Act by which the Transaction will encumber, diminish, or cause a loss of Ranchos' water rights in the Mojave Basin? (Ruling at 3.)

Applicants provided an opinion letter dated April 27, 2011 from counsel to the Mojave Water Agency, William J. Brunick, Esq., with the firm Brunick, McElhaney & Beckett, in San Bernardino, Ca. In that opinion counsel affirmed that the proposed Transaction would not constitute a transfer of the water right (question 1); would not require approval by the Mojave Water Agency (question 2); and would not encumber, diminish, or cause a loss of Ranchos' rights (question 3).6

We find this opinion letter to be sufficient and persuasive that the transfer to Carlyle will not harm Ranchos' access to water, and therefore find that we can approve the transfer of control without concern that the transfer in itself might encumber, diminish, or cause a loss of Ranchos' existing water rights in the Mojave Basin.

Town also expressed a fear that the new controlling interests had no local ties and would consider the water rights to be a fungible commodity to potentially be sold. However, Applicants clearly acknowledge in the record that the water rights are held to serve Ranchos' customers. Further, Ranchos (regardless of who owns or controls the company) cannot dispose of the water rights or transfer the water rights without the approval of this Commission. We therefore clarify in this decision that Ranchos (or its proposed new owner Carlyle) cannot encumber, diminish, or transfer the water rights in the Mojave basin without an order of this Commission.

In the supplemental filings by Applicants (Supplements 3 and 4), it was disclosed and explained in detail that the relevant Carlyle entity to this transaction, Carlyle Infrastructure Partners L.P. , will dissolve no later than September 28, 2021, and the assets must either be disposed of or some other as yet unformed Carlyle investment fund may acquire the assets. (Supplement 3 at 3.)

Faced with a certain termination of ownership by the proposed transferees, we must ensure there will be a timely and orderly subsequent transfer of control over Park and Ranchos when Carlyle Infrastructure Partners L.P. dissolves. When any utility files for a transfer of control, as did Park and Ranchos, the Commission must take whatever time is necessary to review the transaction and may even refuse the authority. Therefore we find that it is in the public interest to require Carlyle, as a condition to approval of the transfer, to file an application with a specific plan for the future disposition of Park and Ranchos. We are not concerned with whether the plan is to sell Park and Ranchos to a new owner or owners or to a new Carlyle investment vehicle: rather, we are concerned that we have sufficient time to review and approve the proposal.

We select 18 months as a reasonable period to process such an application. It is the time limit generally imposed by statute to complete a ratesetting application. It is also long enough, we believe, that the Commission may examine any proposal, and if necessary, make modifications to the plan to protect the public interest. Without this requirement the Commission could find itself forced into a hasty review or risk the uncertainty and chaos that would likely surround Park and Ranchos by the dissolution of Carlyle while a transfer of control was pending.

6 The full response and opinion letter: http://docs.cpuc.ca.gov/efile/RESP/134587.pdf.

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