24. Comments on Alternate Proposed Decision

The Alternate Proposed Decision of Commissioner Lynch to the Proposed Decision was mailed on January 28, 2004. Opening comments were filed by SCWC. No reply comments were filed.

For the most part, SCWC's comments repeat arguments previously considered in the preparation of the alternate proposed decision. For example, SCWC repeats its contention that the water rights leased to Folsom were not "useful" pursuant to § 851 because the portion of those rights subject to the lease had not previously been used by SCWC. However, SCWC fails to acknowledge that water rights can be "enjoyed"⁵⁷ and be useful even if not presently used. The fact that, in 1994, SCWC would need to build additional water treatment facilities to take advantage of those water rights did not render the rights useless. As facts subsequent to 1994 have shown, SCWC always had the option to build such facilities in order to capitalize upon the useful water rights in its possession.SCWC also points out that, when it previously transferred 22,000 AFY of water rights to Folsom in 1966, the Commission issued a decision, D.71889, finding that SCWC did not need those water rights to serve its customers. This point only serves to support our decision today. In 1966, SCWC took the required step under § 851 of seeking Commission approval for the transfer of its water rights. In 1994, § 851 continued to require advance approval for the transfer of additional water rights to Folsom. The fact that the Commission had 18 years earlier found the water rights unnecessary to serve customers did not eliminate the statutory requirement to gain Commission pre-approval for the lease in perpetuity of useful water rights. SCWC was right in seeking advance approval in 1966, but seriously erred in not doing the same in 1994.

SCWC misconstrues today's decision in claiming that the decision "argues that SCWC should have retained the water rights it allocated to Folsom . . .." ⁵⁸ We reach no such conclusion. Rather, our holding is that § 851 required SCWC to seek a Commission decision as to whether its lease of water rights was appropriate. We hazard no opinion as to what the outcome of a timely § 851 application would have been. But what is clear is that SCWC's failure to make this required request deprived us of the opportunity to address significant issues presented by the lease.

SCWC contends that ratepayers did not pay for the water rights that SCWC acquired from Natomas Water Company (Natomas) "in any fashion."⁵⁹ The record does not support this contention. In addition to the facts cited above, we note that the contract for the sale of Natomas to SCWC defined the "Property" that was sold to include "[a]ll water and water rights both surface and subsurface (including inchoate rights and undivided interests and rights) owned or claimed by Seller on the Closing Date . . .."⁶⁰ In addition, the contract identified such water rights as among the properties that were "used by or useful to Seller" and were included in the overall "Property" that was being sold under the agreement.⁶¹ Thus, the water rights at issue were part of the property that was exchanged for value in the sale of Natomas to SCWC. In addition, the language of the agreement itself contradicts SCWC's claim that the water rights were not useful.

The contract language provides a further reason for rejecting SCWC's argument that it properly accounted for the water rights and the lease proceeds as non-utility property. The water rights were part of the utility property transferred upon the sale and were explicitly characterized as among the used or useful property being sold.