Concurring Opinion of President Loretta Lynch and Commissioner Carl Wood

This case involves a transfer of ownership of the facilities of the Bidwell Water Company to the Indian Valley Community Services District. The Commission has voted to approve the transfer, and I concur. This separate opinion sets forth my views on the application of Section 851 of the Public Utilities Code to this case.

Transfers of utility property are controlled by Article 6 of Chapter 4 of the Public Utilities Act, sections 851 through 856. Section 851 governs sales or other transfers of utility property. It provides in part:

851. No public utility other than a common carrier by railroad subject to Part I of the Interstate Commerce Act (Title 49, U.S.C.) shall sell, lease, assign, mortgage, or otherwise dispose of or encumber the whole or any part of its railroad, street railroad, line, plant, system, or other property necessary or useful in the performance of its duties to the public, or any franchise or permit or any right thereunder, nor by any means whatsoever, directly or indirectly, merge or consolidate its railroad, street railroad, line, plant, system, or other property, or franchises or permits or any part thereof, with any other public utility, without first having secured from the commission an order authorizing it so to do. Every such sale, lease, assignment, mortgage, disposition, encumbrance, merger, or consolidation made other than in accordance with the order of the commission authorizing it is void.

This provision requires that the Commission determine that the public interest is promoted before a transfer is approved. D. 71758, La Puente Cooperative Water Company, 66 PUC 614, 628 (1966); D. 70449, Plunkett Water Company, 65 PUC 313 (1966). As the California Supreme Court noted in the first case interpreting the predecessor of this section:

The commission's power is to be exercised for the protection of the rights of the public interested in the service, and to that end alone. The sales, leases, or encumbrances affected by section 51a are dispositions of property of a public utility "necessary or useful in the performance of its duties to the public." The owner may not transfer such properties unless authorized by the commission. All that the commission is concerned with, therefore, is whether a proposed transfer will be injurious to the rights of the public. If not, the owner may be

authorized to make the transfer. Hanlon v. Eshleman, 169 C. 200 at 202 (1915), emphasis added.

Since this clear enunciation of an intention to protect consumer/user/ratepayer rights, the public interest standard in water utility transfer cases has been consistently understood by the Commission to require that the ratepayers in fact benefit from a transfer. For example, in Plunkett Water Company, supra, the Commission rejected a proposed transfer of water utility assets because the possibility of a rate increase for customers served by the transferred assets outweighed the benefits of improved fire protection. 65 PUC 313-315-16. The basis for the result was declared by the Commission to be, in part, that "...[t]he 231 customers who would be concerned in this transfer have not consented to assume the burden which would be involved, nor were they advised of the possibility or contingency...." Ibid. at 315. Captive water customers, and the facilities used to serve them with water, ought not to be traded among investors unless the Commission determines that it is in their interest that the transfer take place. Compare, D. 70772, Anderson Water Company, 65 PUC 607 (1966), approving a sale to a municipal entity proposing to upgrade and interconnect water systems, despite an admittedly inflated ratebase.

In Corona City Water Company v. Public Utilities Commission, 54 C. 2d 834, 9 Cal Rptr. 245 (1960) the California Supreme Court upheld a rejection by the Commission of the sale of a valuable water well by a utility (Corona) to a related entity asserted to be exempt from CPUC regulation (Temescal). The effect of the sale would have been to deprive the Corona customers of a lower cost source of water - i.e., to raise their rates. The issue before the Court and the Commission was whether the Commission should exert its jurisdiction over entities that were arguably exempt from regulation. In the face of a strong legal argument that - due to anomalies in the water rights -- the well could not be pumped at all by Corona, the transferring utility, the Supreme Court upheld the Commission:

...whether or not ...an infringement [of Corona's rights] has occurred, the intercorporate relationship is fraught with hazards to Corona and its customers. Thus the largely agricultural independent stockholders of Temescal are in a position to subsidize their water service at the expense of Corona and to prevent Corona's objecting by their control of it. It is the existence of such power, not merely its improper exercise, that violates the principles underlying the exemption [from regulation.]

9 Cal Rptr. 245 at 248

The basis for the Commission's power to approve transfers of water utility property under section 851 is the need to protect captive ratepayers from exploitation or abuse, either actual or threatened. It is the essence of the Commission's exercise of that power that it determines that the captive ratepayers will benefit from the transfer.

Similarly, section 854, which applies to transfers of control of utility companies has been consistently understood to require a finding that acquisition of control is in the public interest and will benefit the affected ratepayers, including appropriate conditions. Application of Benjamin and Lourdes Nepomuceno, D. 87781, 82 PUC 504, 505 (1977), citing Hempy v. PUC, 56 C.2d 214 (1961). In that case, the Commission went so far as to control rates charged consumers by a court-appointed receiver in order to assure ratepayer benefits. 82 PUC 504, 509, Ordering Paragraph 7.

These authorities, stretching over more than 80 years of consistent interpretation, convince us that the public interest standard under section 851 includes a requirement that the transaction result in ratepayer benefit, that there be a positive contribution to the well-being of the water users who obtain that essential service from the water utility or property being transferred. Ratepayer benefit, not ratepayer indifference is the essence of the public interest standard under section 851.

In this case the undisputed record establishes that the transferring owners desire to be rid of the obligations of providing water service, and that the transfer to the public

agency will improve the utility's responsiveness and financial accountability without raising rates. Hence our vote of approval.

/s/ LORETTA M. LYNCH

Loretta M. Lynch

President

/s/ CARL WOOD

Carl Wood

Commissioner

San Francisco, California

October 3, 2002