II. Jurisdiction
This application was filed pursuant to Pub. Util. Code §§ 851 through 854.1 Section 851 requires Commission approval before a public utility may sell the whole or any part of its system. Section 852 requires a public utility to secure Commission authority before acquiring any capital stock of any other public utility. Section 854 requires Commission approval for a transfer of indirect control of a utility. There are several subsections of Section 854 that must be considered to determine whether applicants proposed transfer of indirect control is in the public interest.
A. Section 854(a)
Section 854(a) requires Commission approval before any person or corporation merges, acquires, or controls any public utility organized and doing business in this state without first securing authorization to do so from this Commission. The Commission has broad discretion to determine if it is in the public interest to authorize a transaction pursuant to § 854(a).2 The primary standard used by the Commission to determine if a transaction should be authorized under § 854(a) is whether the transaction will adversely affect the public interest.3 The Commission may also consider if the transaction will serve the public interest. When necessary and appropriate, the Commission may attach conditions to a transaction in order to protect and promote the public interest.4
In regards to whether the proposed transaction is in the public interest, the parties differ on whether the "ratepayer indifference standard" (a showing that no negative effects result from the change of control), or a ratepayer benefit standard should apply to this application. We are not using the ratepayer benefit standard for this application and pursuant to the October 6, 2006 assigned Commissioner Scoping Memo and Ruling. Irrespective of the ratepayer indifference standard, we do find that the transaction will result in benefits to the ratepayers.
B. Section 854(b) and (c)
The additional criteria needed for authority to transfer control of a utility set forth in subsections (b) and (c) of § 854 are not applicable in this instance because those subsections do not pertain to water companies like Cal-Am. Those subsections pertain to electric, gas, and telephone utilities having gross annual California revenues in excess of five hundred million dollars.
C. Section 854(d)
Section 854(d) requires that when reviewing a merger, acquisition, or control proposal, the Commission shall consider reasonable options to the proposal recommended by other parties to determine whether comparable short-term and long-term economic savings can be achieved through other means while avoiding the possible adverse consequences of the proposal.
The San Lorenzo Valley Water District (SLVWD) and County of Santa Cruz (County) cited § 854(d) as its authority to request that any approval of this application be conditioned upon the divestiture of the Cal-Am Felton district to a public agency. Applicants disputed whether § 854(d) is applicable in this instance and disputed whether this proceeding should address any divestiture of their property, which they believe should be addressed only in a condemnation proceeding. Pursuant to the October 6, 2006 Scoping Memo, the SLVWD and County's proposed divestiture condition was specifically excluded from this proceeding. In the December 12, 2006 Ruling denying a motion to modify the scope of the proceeding, we encouraged the parties interested in public acquisition of the Felton District to pursue that interest and we invited them to use our alternative dispute resolution program. We would also like to take official notice of the Condemnation filing by the San Lorenzo Valley Water District in the Superior Court of Santa Cruz County on February 21, 2007, Case Number CISCV156413.
Although applicants are seeking a transfer of indirect control of all the water and wastewater systems of American Water and its subsidiaries providing service in 29 states and Canada, this proceeding involves American Water only as it relates to its California subsidiary, Cal-Am and its seven districts. Of the 18 million customers involved in this transaction, Cal-Am provides water service to approximately 170,000 connections. This amounts to a very small percentage of all customers that will be impacted by the proposed transfer of indirect control. The Felton District has 1,300 connections, which represents less than 1% of all California customers impacted by the proposed transaction.
A reasonable option for consideration in this proceeding under § 854(d) would be a proposal that puts forth short-term and long-term economic savings for the seven districts of Cal-Am as a whole, not the minuscule portion of the proposed transaction as sought by SLVWD and County. No party offered to submit such a proposal for consideration in this proceeding. Hence, § 854(d) is not applicable in this proceeding.
We affirm the October 6, 2006 Scoping Memo, which specifically excluded from considering in this proceeding whether approval of a transfer of indirect control should be conditioned upon the divestiture of the Cal-Am Felton district to a public agency pursuant to § 854(d).
1 All statutory references are to the Public Utilities Code unless otherwise stated.
2 See Decision (D.) 95-10-045, 62 CPUC 2d 160 at 167 and, D.91-05-026, 40 CPUC 2d 159 at 171.
3 See D.00-06-079, 7 CPUC 3d 101 at 107.
4 See D.02-12-068, mimeo., p. 11.
