V. Assignment of Proceeding

Geoffrey F. Brown is the Assigned Commissioner and Steven Kotz is the assigned ALJ in this proceeding.

Findings of Fact

1. By emergency order, Grand Oaks has been operated under contract by Dominguez, and subsequently by CWS when it merged with Dominguez. The emergency order was issued about eight years ago, after the Grand Oaks' water system was effectively abandoned by its owners of record.

2. Of Grand Oaks' two owners of record, named as individual respondents in this investigation, one is deceased and the other now disclaims knowledge of or involvement with the Grand Oaks water system.

3. The current emergency authorization to operate this water system is a short-term expedient. Over time, a water system will require borrowed or invested funds as appropriate to ensure adequate water supply and quality. Thus, Grand Oaks needs a qualified and responsible owner for the long term.

4. Dominguez had indicated its willingness to acquire Grand Oaks, and CWS is currently willing to acquire Grand Oaks, provided that the Commission approves a regulatory mechanism set forth in CWS' status report.

5. An application for approval of the transfer of Grand Oaks from its current owners to CWS would be the appropriate forum for considering CWS' proposed regulatory mechanism, receiving input from Grand Oaks' ratepayers, and resolving issues regarding the current ownership.

Conclusions of Law

1. It is in the public interest that Grand Oaks be acquired as soon as reasonably possible by a qualified and responsible owner.

2. Based on the record to date, CWS appears to be the likeliest candidate to acquire Grand Oaks. The Commission should review CWS' proposed regulatory mechanism as part of an application by CWS to acquire Grand Oaks.

3. CWS should be required to file, within 90 days of the issuance of today's order, an application for the transfer of ownership of Grand Oaks.

4. Brit O. Smith, as the survivor of the two persons authorized by D.90-06-052 to purchase Grand Oaks, should be required to join in CWS' application and to otherwise cooperate with CWS in resolving ownership issues.

5. Until further order of the Commission, CWS should be required to continue to operate the Grand Oaks water system.

6. Today's order should be made effective immediately.

INTERIM ORDER

IT IS ORDERED that:

1. California Water Services Company (CWS) shall file, within 90 days of the effective date of today's order, an application for approval of the transfer to CWS of the Grand Oaks Water Company (Grand Oaks). Brit O. Smith shall join in CWS' application and shall otherwise cooperate with CWS in resolving ownership issues that may have arisen since the purchase of Grand Oaks by Brit O. Smith and Phillip L. Shirley.

2. Until further order of the Commission, CWS shall continue to operate the Grand Oaks water system.

3. Upon the filing of CWS' application, as set forth in Ordering Paragraph 1, Case 07-01-003 and Investigation 97-06-037 shall be closed; however, the record in those proceedings may be referenced, as provided in Rule 72 of the Commission's Rules of Practice and Procedure, as may be appropriate to facilitate consideration of CWS' application.

This order is effective today.

Dated August 25, 2005, at San Francisco, California.

MICHAEL R. PEEVEY

President

GEOFFREY F. BROWN

SUSAN P. KENNEDY

DIAN M. GRUENEICH

JOHN A. BOHN

Commissioners

ATTACHMENT

Extracts from Decision 97-08-067

(Interim Emergency Order)

On June 20, 1990, the Commission issued D.90-06-052 in Application (A.) 89-11-005 which authorized Brit O. Smith and Phillip L. Shirley to purchase Grand Oaks. The decision ordered Grand Oaks not to serve additional customers without an order from the Commission authorizing such an expansion. At the time of acquisition of Grand Oaks by Brit O. Smith and Phillip Shirley, Grand Oaks was serving 38 customers.

On January 2, 1997, C. J. Villalobos et al. (complainants) filed a complaint (Case (C.) 97-01-003) against Grand Oaks contending that the quality of service provided by Grand Oaks was below normal standards. Specifically, complainants stated that flow rate, quality, and pressure of water provided by Grand Oaks were unacceptable to them.

In response to the complaint, Administrative Law Judge (ALJ) Sheldon Rosenthal conducted a mediation meeting in Tehachapi which was attended by complainants and Phillip L. Shirley. While Brit O. Smith did not attend the mediation meeting, he informed ALJ Rosenthal, by a letter dated January 22, 1997, that he no longer was an owner of Grand Oaks.

ALJ Rosenthal's effort at mediation was unsuccessful. Accordingly, the matter was set for an evidentiary hearing in Tehachapi on March 19, 1997 before ALJ Garde.

During the evidentiary hearing, it became evident that Grand Oaks not only needed system improvements immediately, but that Grand Oaks was also in violation of several orders of the California Department of Health Services (DHS). DHS has imposed fines in excess of $6,000 on Grand Oaks which Grand Oaks has not paid.

Phillip L. Shirley agreed to make the needed improvements within 30 days and to provide the needed water samples to DHS for testing.

The ALJ directed the Water Division project manager, Daniel Paige, to prepare and present, at a subsequent hearing, a report on the progress of system improvements that Phillip L. Shirley agreed to put in place.

A second evidentiary hearing was held on May 8, 1997, in Tehachapi at which Daniel Paige testified that other than fixing a few minor leaks, Grand Oaks has not made any of the agreed-upon improvements to the system. Daniel Paige also testified that Grand Oaks had added four more customers in violation of D.90-06-052. Daniel Paige recommended that Grand Oaks be fined pursuant to Public Utilities Code § 2107 for violating this Commission order.

Based on the evidence provided at the two evidentiary hearings, the Commission issued an order (I.97-06-037) requiring the owners of Grand Oaks to show cause why they should not be fined for these violations.

A third evidentiary hearing consolidating C.97-01-003 and I.97-06-037 was held in Techachapi on July 24, 1997, during which Brit O. Smith and Dominguez filed appearances. Phillip L. Shirley did not attend the hearing.⁴

Based on the testimony provided during the third evidentiary hearing, it became evident that water pressure in the system is inadequate to allow several customers to flush their toilets and that Phillip L. Shirley has neglected to maintain the system. It also became evident that there is an immediate need to take corrective steps to improve the system by finding a qualified operator for the system.

Dominguez agreed to buy the Grand Oaks' system. However, because the acquisition process cannot be completed immediately, Dominguez has agreed to operate the system through a contract with the owners of Grand Oaks if the Commission grants it the authority to do so.

In his testimony, co-owner, Brit O. Smith requested that the Commission not impose any fines on the owners of Grand Oaks and stated that he is willing to sell the system to Dominguez for a nominal charge of $1.00. In addition, Brit O. Smith agreed to enter into a contract with Dominguez allowing Dominguez to operate the Grand Oaks' system. Brit O. Smith stated that he will be able to convince Phillip L. Shirley to sign the contract for the operation of the system by Dominguez and to agree to sell the system to Dominguez.