II. Commission Proceedings

On May 18, 2000, the Commission commenced an investigation to determine whether Keene is a public utility water system. In April 2002, the Commission issued Decision (D.) 02-04-017 finding that Keene is indeed a public water utility and directing the Commission's Water Division to complete a rate study for the system. In that decision, we characterized the water system as anomalous. (D.02-04-017 at 2.) Keene was ordered to provide water to all existing customers as of the commencement of the Order Instituting Investigation (OII), so long as they paid for the water. The Water Division submitted its rate study on April 17, 2003, finding that existing rates are insufficient to cover the costs of providing service. (Water Division, Response to the Request for Interim Rate Relief at 2 (Jan. 21, 2005).)

On June 12, 2003, the assigned Administrative Law Judge (ALJ) requested Keene to indicate whether it intended to file a formal rate application. Keene indicated that it intended to file such an application. The Commission closed the OII with the issuance of D.03-10-073 on October 31, 2003. The Commission ordered Keene to file its application but waived the requirement for filing a notice of intent.

On November 4, 2004, Union Pacific filed its rate application on behalf of the Keene Water System. The application was protested by the Stonybrook Corporation (a water user owning a 200-acre conference and educational center known as La Paz), Bridget Beard (an individual water user), and the Commission's Water Division. The Kern County Fire Department appeared as an interested party.

A prehearing conference was held on January 11, 2005. The scoping memo for the proceeding was issued on January 13, 2005. The parties were notified of the possible availability of intervenor compensation. No one filed an intent to claim intervenor compensation.

During the prehearing conference, the assigned ALJ heard oral arguments on Keene's Motion Regarding Service of Notice of Rate Increase Application (Nov. 23, 2004). The motion asked for approval of the steps Keene had taken to provide notice of the ratesetting proceeding. The Stonybrook Corporation opposed the motion. The assigned ALJ granted the motion on the condition that Keene undertake additional steps to identify and provide notice to persons owning property receiving water from the Keene Water System. Keene complied with this order.

A well-attended public participation hearing was held for the customers of the Keene Water System in the community of Keene on the evening of February 7, 2005.

As part of its application, Union Pacific asked that the Commission immediately adopt, as an interim measure, the rates proposed by the Water Division in its April 2003 report. The Water Division and other protestants opposed the request. In D.05-04-028 (April 7, 2005), we adopted the assigned ALJ's draft decision and denied interim relief. We found that interim relief was not warranted because the "system has numerous problems . . . concerning the identity of water users, responsibilities for major parts of the distribution system, meter reading, and billing and collection procedures." Id. at 5.

The parties indicated they wished to try to settle the major issues in the proceeding. In response, the assigned ALJ scheduled a series of six workshops and telephonic conference calls to attempt settlement. All of the parties participated actively in these discussions. Other water users, representatives of the Tehachapi-Cummins Water District, and representatives of the California Department of Health Services (DHS) participated in all or some of the meetings. Throughout this settlement process, the participants worked diligently, constructively, and in good faith; but, ultimately, the parties were unable to reach a settlement. The discussions addressed strategies for improving the water supply and quality, responsibilities for the various sections of the distribution system, and identifying and billing water users. The settlement process, however, may have improved understanding and communication between the railroad and the community.

With an impasse in the settlement process, the matter proceeded to an evidentiary hearing held in Fresno on July 20 and 21, 2005. Michael Lyon and Rich Robinson testified for Keene Water System. Elena Perez testified for the Water Division. Emilio J. Huerta testified for the Stonybrook Corporation. Bridget Beard testified for herself.

The record closed on August 5, 2005; and, after briefing, the proceeding was submitted on September 21, 2005.