Summary

This decision grants Hillview Water Company, Inc. (Hillview) the authority requested in Application (A.) 00-10-043 (Application), as amended, and consolidated with Investigation (I) .97-07-018.

As shown in the Application, Hillview requests authority, pursuant to

§ 816 et. seq. of the Public Utilities (PU) Code and Rule 33 of the Commission's Rules of Practice and Procedure to enter into a loan agreement with the Department of Water Resources (DWR) to borrow $3,408,447 under the Safe Drinking Water State Revolving Fund (SDWSRF); to encumber its assets in connection with the loan; and to place in effect a surcharge on existing water rates for the purpose of amortizing the loan and accumulating a sinking fund reserve equal to one year's debt service.

The proceeds of the loan are to be used for construction of new wells, new raw water transmission line, new treated water transmission line, upgrade of treatment plants, new storage tank, and other water system improvements for the Oakhurst and Sierra Lakes (OSL) districts required under the safe water drinking standards set forth by the state Department of Health Services (DHS).

Notice of the filing of the Application appeared on the Commission's Daily Calendar of October 27, 2000. At that time, eleven protest letters were received.

On September 18, 2002, the utility together with DHS and Commission staff conducted a public meeting at Oakhurst, California to explain the need for system improvements, the proposed loan, impacts the project will have on rates, and to address customers' concerns. Most of the customers appeared to understand the benefits that would result from plant improvements purchased by the loan proceeds as well as the need to add a rate surcharge for repayment of the loan. No formal protests were received after the September 18, 2002 meeting, and the Application is currently uncontested.

Background

Hillview, a California corporation, is a Class C water utility under the jurisdiction of this Commission. Hillview owns and operates the OSL water system, which serves the area in and around Oakhurst in the foothills of eastern Madera County. The water system serves approximately 1005 connections (about 877 with ¾" meter size). In addition, the community hosts an estimated one million visitors per year that pass through on their way to Yosemite National Park.

Pursuant to Hillview's 2001 Annual Report, the utility generated total operating revenues of $961,179 and net loss of $22,942. Schedule A of the 2001 Annual Report shows the company's balance sheet as of December 31, 2001, which is summarized below:

Assets Amount

Net Utility Plant $4,238,459¹

Current and Accrued Assets 203,379

Other Assets 607,043

Total Assets $5,048,881

Liabilities & Equity

Common Stockholders' Deficit $ (76,574)

Long-Term Debt 1,355,309

Current and Accrued Liabilities 1,312,584

Deferred Credits 725,875

Net Contributions in Aid of Construction 1,731,687

Total Liabilities & Equity $5,048,881

This proceeding is an investigation of Hillview regarding possible violations of statutes and regulations in connection with, among others, utility investment in plant and dealings with customers obtaining water service. Ordering Paragraph 7 of the Order Instituting Investigation

I.97-07-018 dated July 6, 1997 (the OII) states:

Until further order, any proposals to increase rates or charges submitted to the Commission on behalf of Hillview, as well as any individual complaints filed against Hillview, shall be consolidated with this enforcement proceeding for consideration.

Accordingly, the instant application (A.00-10-043) was consolidated with I.97-07-018.

On September 8, 1997, DHS issued Hillview a Compliance Order No. 03-11-970-002 for failure to comply with the Uranium MCL and failure to insure that customers are provided with a reliable and adequate source of pure, wholesome, healthful and potable water. Many customers are using bottled water to meet drinking water needs as a result of this problem.

DHS ordered Hillview, among others, to:

1. (a) Cease and desist from failing to comply with the California Health and Safety Code (CHSC), Sections 4017(a) and (c) and the California Code of Regulations (CCR), Section 64441 by insuring that the Oakhurst-Sierra Lakes Water System (System) is provided with a reliable and adequate source of pure, wholesome, healthful and potable water which is in compliance with all primary water standards.

(b) By October 1, 1997, the System shall submit to DHS, for review and approval, a proposed project developed to correct the current water quality problem and eliminate the need to deliver water to the consumers, which does not meet the primary drinking water standards. The proposed project shall include a time schedule for completion.

(c) Complete all the improvements and/or additions outlined in the proposed project submitted pursuant to Provision (b) above in accordance with the time schedule to be reviewed and approved by DHS.

(d) The System shall not provide water service to any new subdivision, which will require either the expanded use of existing sources of supply, and/or sources that do not meet all primary drinking water standards. This does not apply to sources, new or existing, for which proper treatment is provided and permitted by DHS.

(e) The System shall minimize the use of Sierra Lakes Well No. 4 and Pierce Lake Well No. 1 as much as possible. In addition, the System shall not use Highland View Wells Nos. 1 or 2 under any circumstances.

(f) The System shall provide public notification regarding the inability to meet the uranium maximum contaminant level (MCL), at least once every three months in accordance with Section 64464.3 CCR.

(g) The System shall continue the monthly monitoring as required by Directive 6(a), of Permit No. 03-11-96P-001, until further notice from DHS. Pierce Lakes Well No. 1, recently reactivated, is to be included in the monthly monitoring program. In addition, the System shall perform the required radiological monitoring for all active wells, reactivated wells and new wells on quarterly intervals for one year every four years as specified in Section 64441, Title 22, CCR.

2. If the system is unable to perform the tasks specified in this Order for any reason, whether within or beyond their control, and if the system notifies DHS in writing no less than five days in advance of the due date, DHS may extend the time for performance if the System demonstrates that it has used its best efforts to comply with the schedule and other requirements of this Order.

3. If the system fails to perform any of the tasks specified in this Order by the time described herein or by the time as subsequently extended pursuant to paragraph 2 above, the System shall be deemed to have not complied with the obligations of this Order and may be subject to additional judicial action including civil penalties specified in CHSC, Sections 116725 and 116730.

On November 30, 1999, DHS completed a review of the water system and directed Hillview to develop additional source capacity.

Hillview submitted a long-term construction loan application for the SDWSRF on May 10, 2000 for its OSL System. DHS approved the funding for the project on or about August 17, 2000. Pursuant to DHS' Technical Project Report approved on August 17, 2000, there is a lack of adequate production, treatment, and distribution capacity within Hillview's Oakhurst-Sierra Lakes water system.

On September 20, 2000, Hillview petitioned to modify I.97-07-018. Hillview requests to delete the requirement in the OII that all proposals to increase rates and other new charges be consolidated with this enforcement proceeding for consideration². The petition argues that the company desperately needs a rate increase and authorization to recover costs and charges set forth in various pending advice letters filed since 1997, and that new rates will permit a lender to ascertain the company's future cash flow and ability to service new debt. Hillview believes that the current requirement to consolidate requests for these increases could delay any relief until the OII is closed. By D.02-01-041, the Commission did modify its order so that future requests for water quality loans could be considered outside of the instant investigation. However, because this Application was not expressly removed from this proceeding, approval of this loan is processed as part of I.97-07-018.

On October 19, 2000, Hillview filed A.00-10-043 and on March 15, 2001, filed an Amended Application requesting for additional authority to enter into a funding agreement with DWR for a $25,000 planning loan under the SDWSRF to be used to finance the cost of studies, planning, and preliminary engineering in conjunction with the proposed construction project in the Oakhurst and Sierra Lakes districts.

Decision (D.) 01-05-006 dated May 3, 2001 in A.00-10-043 granted Hillview authority to borrow up to $25,000 planning loan from DWR and due to the proposed surcharge rate, A.00-10-043, as amended was consolidated with I.97-07-018. The planning loan has a term not to exceed five years at zero-percent interest with semi-annual payments.

On August 19, 2002, The Department of Health Services (DHS) approved a $3,408,447 loan for Hillview at a zero-percent interest, payable in 30 years. The loan agreement requires among other things, a surcharge to cover the loan debt service and a reserve requirement.