I0310038 Notice of Opportunity for Hearing & Order to Show Cause Why the Commission should not Petition the Superior Court for a Receiver to Assume Possession & Operation of the Conlin-Strawberry Water Co.

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Investigation on the Commission's Own Motion into the Operations and Practices of the Conlin-Strawberry Water Co. Inc. (U-177-W), and its Owner/Operator, Danny T. Conlin; Notice of Opportunity for Hearing; and Order to Show Cause Why the Commission Should Not Petition the Superior Court for a Receiver to Assume Possession and Operation of the Conlin-Strawberry Water Co. Inc. pursuant to the California Public Utilities Code Section 855.

FILED

PUBLIC UTILITIES COMMISSION

OCTOBER 16, 2003

SAN FRANCISCO OFFICE

I.03-10-038

ORDER INSTITUTING INVESTIGATION, NOTICE OF OPPORTUNITY FOR HEARING AND ORDER TO SHOW CAUSE WHY THE COMMISSION SHOULD NOT PETITION THE SUPERIOR COURT FOR A RECEIVER TO ASSUME POSSESSION AND OPERATION OF THE CONLIN-STRAWBERRY WATER CO. INC.; ADJUDGE ALLEGATIONS OF CONTINUING AND/OR NEW VIOLATIONS; AND IMPOSE APPROPRIATE FINES AND PENALTIES.

I. INTRODUCTION

In this Order Instituting Investigation, Notice of Opportunity for Hearing, and Order to Show Cause, the Commission will hold an evidentiary hearing pursuant to the California Public Utilities Code section 855¹ to determine:

1. Whether the Conlin-Strawberry Water Co. Inc. (CSWC) and/or its owner/operator, Danny T. Conlin, either jointly or severally,² are unable or unwilling to adequately serve their ratepayers; have actually or effectively abandoned the water system; or are unresponsive to the rules or orders of the Commission;

2. Whether the Commission should petition the Tuolumne County Superior Court for appointment of a receiver to assume possession and operation of CSWC and its water system pursuant to the California Public Utilities Code section 855; and

3. Whether any fines or penalties should be imposed on the Respondents for failing to comply with Commission orders, resolutions, or other directions of the Commission.

As explained below, this proceeding implements Ordering Paragraph 3 of Resolution (Res.) W-4207 as modified. That Order provides that if the Water Division reports the Respondents have failed to timely comply with all the requirements of Res. W-4207, the Commission will issue an Order to Show Cause why the Commission should not apply to the Tuolumne County Superior Court for an appointment of a receiver to assume possession and operation of CSWC and its water system.³

According to the Commission's recent 2003 Water Division Report,⁴ the Respondents have failed to comply with two Commission orders issued by Res. W-4207. Those orders require that as of September 30, 2000, the Respondents must (i) replace Respondent Danny Conlin with a qualified system operator and/or manager; and (ii) develop and file an engineering study of system improvements. Despite the Commission's admonishment in Res. W-4207 that "[t]he items not completed are serious and should not be ignored by either the Commission or the Company," the Respondents have not yet complied with these two orders.⁵

The Respondents' failure to respond to an electrical outage in their service area during December of 2002, illustrates that the Respondents have been continuously in violation of a Commission order for two decades. In 1983, the Commission ordered the Respondents to install an answering machine or hire an answering service to receive telephone messages from the ratepayers.⁶ Nearly 19 years later, when an electricity outage occurred on or about December 16, 2002, the Respondents still were out of compliance with the 1983 Commission order. When ratepayers and DHS officials telephoned the Respondents to report they had no water, they found no answering machine or service was available to record their urgent telephone messages. Many of the Respondents' ratepayers had no water service for days. After being unable to reach the Respondents by telephone, DHS decided to publish a safety warning in the local newspaper to ratepayers to boil their drinking water, which had become impotable because of the outage.⁷

In the 2003 audits of the Respondents, the Water Division discovered the Respondents had apparently misappropriated more than $113,000 of Safe Drinking Water Bond Law (SDWBL) loan funds earmarked for water system improvements.⁸ Also missing and unaccounted for are over $103,000 in SDWBL surcharges (including accruable interests) that were billed to and collected from ratepayers for repayment of the SDWBL loans.⁹ The Respondents never deposited the collected surcharges into the SDWBL Trust Account as required by law. Not only is this misappropriation of funds contrary to Commission requirements, it also violates applicable state water law^.10

¹ The term "Section" means a provision of the California Public Utilities Code, unless otherwise indicated. ² "Respondents" means collectively CSWC and Danny T. Conlin, which for purposes of this proceeding are regarded as one and the same person. ³ See, Applic. of Conlin-Strawberry Water Co. Inc. for Rehrg. of Res. W-4207 and Petn. for Modification of Res. W-4207, D. 00-11-043, 2000 Cal. PUC LEXIS 931 at *10 (November 21, 2000), modifying Ordering Para. 3 in Res. W-4207, 2000 Cal. PUC LEXIS 616 at *9 (July 20, 2000). ⁴ See, Water Div., CPUC, Water Division Report for CSWC as of September 2003, attached hereto as Exhibit 1 (Water Div. Rpt 2003) and incorporated by reference as if fully stated here. ⁵ See, Findings and Recommendations Paras. 2 and 5(g) - (h) in Res. W-4207, 2000 Cal. PUC LEXIS 616 at *8 - *9. ⁶ See, Ordering Para. 2(c) in Applic. of Colin-Strawberry Water Co. for General Rate Relief and for Authority to Borrow Funds under the Safe Drinking Water Bond Law and to Add a Surcharge to WATER Rates, D.83-05-052, 1983 Cal. PUC LEXIS 916 at *35- *36, 11 CPUC2d 5410 (May 18, 1983), which states: " [CSWC]. shall undertake the following measures to improve service, under the following schedule . . . Use of telephone answering device or answering service: 30 days from the date of this

order ."

⁷ See e.g., Ex. 1, Water Div. Rpt 2003 at p. 16. ⁸ While Commission and Staff documents refer to the "Safe Drinking Water Bond Act," the official statutory title is the "Safe Drinking Water Bond Law of 1976," according to California Water Code sec. 13850 (LEXIS through 2003 legislation). Apparently, all the SDWBL loan funds in question were advanced to the Respondents under the 1976 enactment. ⁹ According to the Water Division Audit Report dated 18 September 2003, attached hereto as Exhibit 2 (Audit Report) and incorporated by reference as if fully stated here, at p. 2: "$61,714.91 is the surcharge revenues collected but not deposited and $41,553.67 is accruable interest on those revenues." ¹⁰ See, California Water Code section 13850 et seq. (LEXIS through 2003 legislation).