V. DISCUSSION

The Commission has broad powers to supervise and regulate water utilities in the state, and may do all things "necessary and convenient" in the exercise of its power and jurisdiction. (Public Utilities (P.U.) Code, Section 701). Included among its powers are the powers to impose fines and to seek the appointment of a receiver to oversee properly the operations of the utility company.

The staff declaration states that Arrowhead continually has violated the Commission's 1980 order to "establish and maintain a separate balancing account in which shall be recorded all billed surcharge revenue and the value of investment tax credits on the plant, as utilized." (D.92178, Ordering Paragraph 4).

Arrowhead apparently rationalizes its position with claims that it had to use surcharge revenues to offset operating losses over the years. This argument is directly contrary to the Commission's long standing policy and judicial case law which prohibits this form of retroactive rate making. If operating revenues are insufficient to cover operating expenses, it is the utility's responsibility to request a rate increase to pay for the higher expenses. The diversion of funds from a specially created program for unauthorized purposes violates Commission decisions and mandates. Funds designated for special accounts must be used for the purpose for which they were created. In that way the program's operations and administration can be assessed accurately and the funds channeled properly for use consistent with the program's stated goals. In the present case, Arrowhead is merely a fiduciary conduit for the collection and disbursement of the surcharge revenues under the SDWBA loan contract. Regardless of the physical commingling of surcharge revenues and the utility's operating revenues, surcharge funds have, at no time, belonged to Arrowhead. Use of SDWBA money, other than in the manner prescribed in the loan contract, constitutes a misappropriation of funds.

We are concerned about Arrowhead because of this utility's alleged misappropriation of SWDBA funds, its apparent inability to effectively address and resolve customer complaints, and its constant violation of State health and safety standards and regulations. For the reasons stated above, there is good cause to believe that this utility is operating in violation of Commission rules, orders and decisions and by its actions or omissions has put essential services in jeopardy.

This Commission needs to ascertain the ability and commitment of the current owner as manager and operator of the Arrowhead water system to run the utility in a manner consistent with applicable laws and Commission orders. In this investigation, we shall consider whether existing circumstances warrant the filing of a petition pursuant to section 855 of the P. U. Code seeking the appointment of a receiver for the water system or whether further proceedings are needed to consider other remedies. Finally, we will take corrective actions, as needed, to best ensure the utility's provision of a continuous, reliable and adequate supply of potable water to its customers and to protect the financial integrity of the utility enterprise.