5. Procedural History
5.1. The February 25, 1999 Prehearing Conference (PHC)
A duly noticed PHC was held in San Francisco on February 25, 1999 before Assigned Commissioner Henry M. Duque and Administrative Law Judge (ALJ) John B. Weiss.
On February 19, 1999 the City had filed a PHC statement wherein it recognized that the Developer's need to resolve the water and sewer issues was time sensitive, but also stated its view that local resolution of annexation issues could resolve the water/sewer issues without the PUC. In support of this view, the PHC statement noted that on January 19, 1999, a Council subcommittee had approved an annexation study (commissioned a year earlier with a first draft issued July 1998), and that the full City Council would consider the study's recommendations on February 22, 1999 to develop an annexation strategy with negotiation parameters.8 The PHC statement asked for a 60-day continuance of the PHC after which the City would report its progress.
The City did not respond at the February 23, 1999 PHC to the Commissioner's PHC notice posing four questions.9 Nonetheless, the ALJ during the PHC, with the approval of the Commissioner, stated that if the City was unequivocally willing and able to serve with no further delay, its proposal to serve would be heard as an alternative to SCWC's request for a CPCN in an Evidentiary Hearing (EH) which the ALJ was scheduling. The ALJ noted that the Commission was constrained to render a decision on the SCWC application within 18 months; that the issue before the Commission was not "annexation," but whether SCWC should be authorized to serve, and our proceeding would go forward without delay. Should the parties reach a pre-annexation agreement providing for City service, the Commission proceeding could be aborted at any time by the Applicant. A second PHC was scheduled for April 22, 1999 providing negotiation opportunity, but an EH schedule was also tentatively established.
5.2. The Resulting Scoping Memo
Following the February 25 PHC, the Assigned Commissioner issued his Scoping Memo and Ruling pursuant to Rule 6.3 of the Commission's Rules of Practice and Procedure. The Memo and Ruling affirmed the ratemaking categorization of the proceedings, designated ALJ Weiss as the principal hearing officer, adopted the timetable schedule discussed in the PHC, and set forth the scope of the proceeding.
5.3. The April 22, 1999 2nd PHC
As scheduled, the 2nd PHC was held in San Francisco before Commissioner Duque and ALJ Weiss. Both the City and the Developer reported on their negotiations.
Negotiation meetings had been held on March 4, 11, 18, and 25, 1999 and on April 1 and 15, 1999. At the last meeting, the City's staff and the Developer agreed upon a list of "deal points" for a draft pre-annexation agreement. Its staff was to present the Council a proposed draft pre-annexation agreement, but not until June 28, 1999.10
The Developer noted (1) a continuing May 1997 Council Resolution to support public purchase of the Developer's property for open space, and (2) a March 29, 1999 Council majority directive to its staff that as a condition to annexation, the Developer must agree to sell its property for public open space. The Developer concluded that good faith of the city's staff notwithstanding, it saw no reasonable expectation of any pre-annexation agreement. In view of the certain litigation challenges that would attend any agreement, the Developer will not agree to annexation until its development is actually built. Finally, the Developer observed that it was committed to pay $500,000 to SCWC should SCWC not be the service provider. The parties did agree to continue negotiations.
Minor scheduling adjustments were made and affirmed by the Assigned Commissioner on April 26, 1999 in an Addendum Ruling to this Scoping Memo.
5.4. The August 23, 1999 EH
The scheduled EH was held in San Francisco on August 23, 1999 before ALJ Weiss (a City request for a delay having been denied).11 As ordered by the Commissioner's Scoping Memo, prepared testimony had been submitted on August 4, 1999 and rebuttal prepared testimony on August 18, 1999.
The applicant utility's testimony and evidence was introduced by Patrick R. Scanlon, District Manager of SCWC's Orange County District. The Developer's testimony and evidence was introduced by Lucy Dunn, Executive Vice President of Hearthside Homes.
The City's testimony and evidence was introduced by Thomas A. Rulla, Principal Civil Engineer in the City's Public Works Department, Dennis E. MacLain, Water Resources Consultant and the City's Interim Water Operations Manager, and Laurie J. McKinley, Principal Partner, McKinley Nielsen Associates, public policy and governmental affairs consultants.
The RRB introduced no witnesses but did provide a staff report and brief and participated in cross-examination.
5.5. Briefing
Concurrent Closing and Reply Briefs were submitted, respectively, on September 8, 1999 and September 22, 1999. The proceeding was submitted for decision on September 22, 1999.
5.6. Oral Argument
Pursuant to timely written request, an ALJ Ruling set oral argument before a quorum of the Commission for May 2, 2000. SCWC, Hearthside, the City, and the Land Trust presented oral argument to Commissioners Duque, Bilas, Neeper, and Wood as scheduled.
8 Although the Council meeting has transpired only a couple days previously, the City did not report that at its February 22, 1999 meeting, two Council members stated their opposition to any annexation agreement and were against any negotiations at all with the Developer. And as the minutes of that meeting revealed, it was a majority that voted to proceed.9 In the notice for the PHC, the Assigned Commissioner directed the City to respond to a question at the PHC. Although the City's response was dated February 23, 1999, it was filed March 8, 1999 (after the PHC) in form of a "Supplement to City's PHC Statement." These four questions and a summary of the City's responses follow:
Question 1. "Does the City presently desire to itself provide water service or sewer service to the Planned Community?" While stating that it considered itself to be the most direct supplier, being the closest in proximity and capable of providing a reliable looped service, the City's response avoided answering the question. It did not state whether or not it wanted to provide service. It stated it could not provide service beyond its boundaries without LAFCO approval and that it had to work within defined legal procedures with the Developer, and that the Developer had not applied to annex.
Question 2. "Does the City presently have surplus water or immediate access to water supplies sufficient to meet the stated requirements of the Planned Community?" Again, the direct question is not answered. Instead, the response stated that if annexed, the City would have to provide water service, and sets forth its two basic sources and states that details of supporting infrastructure are expected to be refined during pre-annexation negotiations.
Question 3. "If the City prefers annexation, is it able to immediately proceed with the annexation formalities to annex the Planned Community?" The City Council 5-2, on February 22, 1999 authorized discussions with the Developer on a pre-annexation agreement. But there was no acknowledgement of the existing County-Developer Agreement (the real "sticking point"), rather reference was to provisions of earlier "Bolsa Chica Principles" adopted in 1994 by the Council containing requirements pertaining to lot size, design, height, density, etc.
Question 4. "If the City is unwilling or unable to annex at this time, but is now willing and able to provide water and sewer services to the Planned Community, and desires to do so, is the City willing to expeditiously negotiate and execute a binding service contract or contracts for provision of water and/or sewer services to the Planned Community?" The response was that while the City rejected the Developer's 1997 proposal for extra-territorial service, the City has never said it would not contract under any circumstances, although LAFCO would have to approve. The response stated that at present it was moving toward an annexation strategy beneficial to both City and Developer.
