CONCLUSIONS

1. To the extent that DHS should issue compliance orders to water utilities under our jurisdiction, its is our responsibility to provide the regulated utility the means to comply with such an order.

2. Hillview has a public utility responsibility to maintain its quality of service and to provide necessary repairs and replacements of its present water system.

3. DWR would not grant any SDWSRF loan unless coupled with a surcharge to repay the principal and interest (zero in this case).

4. This proceeding involves public necessity and failure on our part to issue a decision prior to the outcome of the OII may cause significant harm to public health or welfare.

5. Labor to be procured or paid for by the issue of the loan authorized by this decision is reasonably required for the purposes specified, which purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.

6. The surcharge authorized in Appendices A and B is just and reasonable.

7. Hillview should submit to the Director of the Water Division a certification from DHS when the plant is within 30 days of completion.

8. It is in the public interest that the surcharge on existing water rates be collected upon completion of the project.

9. The rate surcharge to be established to repay the loan should last as long as necessary to repay the loan. Surcharge revenues would not be commingled with other utility charges.

10. Vacant or undeveloped lots will benefit from the expenditures being made from the proceeds of the SDWSRF loan. The benefits include potentially increased property values and the availability of water furnished by a public utility, which meets health standards.

11. It is reasonable to establish a service fee for new connections pertaining to vacant or undeveloped lots since these lots will benefit from the improvements. This fee should be the equivalent surcharge payment from the initiation of the surcharge.

12. A maximum lump sum service fee of $2,000 payable upon connection by customers requesting future services to vacant or undeveloped lots is reasonable.

13. The utility plant financed by this SDWSRF loan should be permanently excluded from rate base for ratemaking purposes.

14. Special accounting requirements are necessary to ensure that there are no unintended windfalls to the utility owners. The rate surcharge should be adjusted periodically to reflect changes in the number of connections.

15. Hillview should review annually the rate surcharge and adjust as necessary, by the advice letter procedure, the rate surcharge to reflect changes resulting in overages and shortages in the bank account.

16. Hillview should pay the fee determined in accordance with Public Utilities Code § 1904(b).

17. Today's order should be made effective immediately to enable the utility to promptly proceed with the SDWSRF loan and the project to be financed by that loan.

O R D E R

THEREFORE, IT IS ORDERED that:

1. Hillview Water Company (Hillview), on or after the effective date of this order, is authorized to borrow up to $3,408,447 from the State of California under the Safe Drinking Water State Revolving Fund (SDWSRF) for a period of thirty years at zero-percent interest; to execute and deliver the loan contract with the California Department of Water Resources (DWR); to encumber its assets in connection with the loan; and to use the proceeds for the purposes specified in Application (A.) 00-10-043, as amended and consolidated with Order Instituting Investigation dated July 16, 1997 in I.97-07-018.

2. Hillview is authorized to file in accordance with General Order No. 96-A, and make effective on five days' notice, but not earlier than 30 days prior to completion date of the project as verified by the state Department of Health Services, an advice letter which implements the rate surcharges to customers of the Oakhurst and Sierra Lakes districts attached to this order as Appendices A and B.

3. Hillview shall establish and maintain a separate bank account, to ensure adequate accountability of deposits and disbursements of the SDWSRF loan construction funds advanced by DWR to the utility.

4. A separate line pertaining to the surcharge shall appear on each customer's water bill issued by Hillview.

5. The utility plant or asset financed through the SDWSRF loan shall be permanently excluded from rate base for ratemaking purposes.

6. To assure repayment of the loan, Hillview shall deposit all rate surcharges and service fees collected with a fiscal agent approved by DWR. Such deposits shall be made within 30 days after the surcharges and service fees are collected from customers.

7. Hillview shall provide the Director of the Water Division semiannual summaries of transactions including all surcharge and service fee billed to customers, amounts collected, amounts deposited with the fiscal agent, interest earned on deposits, loan payments, charges for services, and any monies in the bank account.

8. The fiscal agent shall provide the Director of the Water Division an annual summary detailing the amounts of receipts and disbursements during the year, and identifying the sources of receipts and purposes of the disbursements.

9. On or before July 31, 2004, and semiannually thereafter, for as long as the surcharge is imposed, Hillview shall send to the Director of the Water Division a comparative report stating the changes in the number of connections by type of customer and by size of connection, the amount of service fee collected, the outstanding balance of the loan, and the overages and shortages in the utility's balancing account. Hillview shall also indicate in the report if an advice letter will be forthcoming to reflect changes in the surcharge rate.

10. The surcharge to repay the loan shall last as long as necessary to repay the loan, or until further order of the Commission.

11. The surcharge funds shall not be commingled with other utility funds.

12. As a condition of the surcharge rate granted herein, Hillview shall be responsible for refunding or applying on behalf of the customers of the Oakhurst and Sierra Lakes districts any surplus accrued in the bank account when ordered by the Commission.

13. A service fee shall be charged to customers requesting future services to currently undeveloped lots and shall be the accumulated total of the monthly surcharge as applied to the property being furnished water service from the initial effective date of the surcharge to the date of connection. The maximum service fee shall be $2,000. The service fee shall be due and payable upon connection of water service to the property. Thereafter the customer shall pay the applicable tariff rates plus the monthly surcharge.

14. To the extent that the funds would be used for construction of new facilities, the utility shall comply with any applicable environmental regulations for any capital improvement undertaken relative to this decision.

15. Hillview shall obtain approval of the construction project from all local, state, and federal agencies having approval responsibilities.

16. Hillview shall send to the Director of the Water Division a copy of any engineering report containing the design, specifications, and construction of its proposed improvements.

17. Hillview shall submit to the Director of the Water Division a quarterly report indicating the status of the construction, including but not limited to cost.

18. Hillview shall inform the Director of the Water Division when construction has been completed.

19. Hillview shall file with the Director of the Water Division a copy of the DWR loan agreement and promissory note within 15 days of execution.

20. Hillview shall maintain, and within thirty days upon request provide the Director of the Water Division any documents, bank statements, and information pertaining to the SDWSRF loan and surcharge collection.

21. As a condition of the order granted herein, Commission Staff will conduct an annual audit of Hillview's books and the trust account to ensure that the authorized plant is booked properly and accurately, and all activities are in accordance with Commission's rules and regulations. The Director of the Water Division shall report the results to the Commission.

22. The authority granted by this order shall become effective when Hillview pays $4,408, the fee set forth by Public Utilities Code § 1904, to the Commission.

23. This order does not prejudge any issue pertaining to Investigation 97-07-018.

24. A.00-10-043 is closed.

APPENDIX A

Schedule No. 2

METERED SERVICE SURCHARGE

APPLICABILITY

TERRITORY

LOAN REPAYMENT SURCHARGE

Size of Service Monthly Monthly

SPECIAL CONDITIONS

1. This surcharge is in addition to the water bill and the Co-Bank Loan Surcharge. The surcharge is specifically for the repayment of the Safe Drinking Water State Revolving Fund loan authorized by Decision No.

02-11-015.

2. The monthly surcharge rates are subject to periodic adjustment.

APPENDIX B

Schedule No. 2-A

SAFE DRINKING WATER STATE REVOLVING FUND LOAN

UNDEVELOPED LOT CHARGE

APPLICABILITY

RATES

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