Evaluation of Public Interest

To determine whether this proposed transfer is in the public interest, we look primarily to its effect on ratepayers. LNR, a real estate firm, currently indirectly owns a 50% interest in Valencia. After the transaction, Cerberus, the current major LNR shareholder, and certain LNR executives will indirectly own a 50% interest in Valencia. In short, Valencia will change from being owned by two real estate development firms, Lennar and LNR, to being owned by Lennar and a large investment firm, Cerberus, and a current LNR investor and executives. As noted above, we have previously found that Newhall has little day-to-day involvement with Valencia.

The protestants have not demonstrated any specific impact on ratepayers of the transaction. Virtually all of the Conditions are designed to ensure that ratepayers are fully insulated from any effects of the transaction. Conditions 12, 13, 14, and 15 impose strong ratemaking prohibitions on LNR and Cerberus costs being included in Valencia's revenue requirement. Condition 6 requires that Valencia maintain its high quality customer service and community involvement, and Condition 7 prohibits closing local offices.

Based on the Conditions, and Newhall's limited role in Valencia's operations, we conclude that ratepayers will not be materially affected by this transfer. Valencia will remain a stand-alone public utility water company, with all services being provided by its own personnel and departments. In contrast to some merger acquisitions, these applicants do not plan for operational consolidations to achieve cost reductions, and Valencia is a modest component of LNR's assets.⁵

Our inquiry into this transfer, however, does not end with ratepayers. We look also to whether it will adversely affect employees or the state and local economies. Condition 5 prohibits any adverse changes to Valencia's employee policies, and Condition 11 requires that all collective bargaining agreements be honored. These requirements are sufficient to ensure that employees will not be adversely affected.

Turning to state and local economies, we are aware of the role that mergers and acquisitions play in enabling businesses to grow and prosper. While we have no desire to impede business development, our duty to public utility customers requires that we balance the need to protect these customers with the overall objective of enhancing economic development. We are satisfied that the conditions we impose in today's decision strike that the balance.

Therefore, we find that the proposed change of indirect control of Valencia, as conditioned by this decision, is in the public interest.