2. Factual Background and Procedural History
Grand View Gardens was incorporated under California law in l987 and is a Class D water utility regulated by the Commission. McComb is the sole owner of Grand View Gardens. The principal place of business for Grand View Gardens is Porterville, California.
Grand View Gardens provides water service to approximately 100 customers located immediately north of Porterville in Tulare County. The water system consists of two wells, two pumps, treatment facilities, mains, related appurtenances and parcels of land and easements. The customers of Grand View Gardens currently pay a flat rate for water service as authorized by tariff.
Watertek was founded in l969 and is a Class C sewer utility regulated by the Commission. Raymond L. Smith (Smith) is the sole owner and operator of Watertek. Smith is a state certified Grade III wastewater operator and Grade II water operator and general contractor. Watertek's principal place of business is in Salinas. Watertek has been operating GrandView Gardens pursuant to an agreement with McComb since June 2000.
Watertek owns three wastewater systems that provide sewer service to approximately 2,800 persons, six commercial entities and four industrial accounts in the Monterey County communities of Oakhills, Indian Springs, and Spreckels. Watertek also operates the water and sewer services for the San Lucas County Water Division in Monterey County and the Castanoa Wastewater system in Santa Cruz County. In addition, Watertek owns and/or operates the East Plano Water System in Porterville, and the Metropolitan Water Company in Fresno.1
On July 27, 2000, McComb and Watertek jointly filed an application for Commission orders which would authorize the following:
· The sale and transfer by McComb of certain assets of Grand View Gardens to Watertek;
· The withdrawal of Grand View Gardens from the water utility business;
· The provision of water utility service to the customers of Grand View Gardens by Watertek;
· The assignment of Aquasource Utility, Inc.'s interest in a certain asset purchase agreement between Aquasource and Grand View Gardens.
The application noted that McComb had previously entered into an agreement to sell certain assets of Grand View Gardens to Aquasource for $73,250.00. Aquasource subsequently attempted to assign its interest in this agreement to Watertek and executed a bill of sale to Watertek, without Commission approval.2 McComb, Watertek, and Aquasource have agreed that McComb will retain all funds previously paid by Aquasource and that Watertek will pay Aquasource $1 for the assignment, subject to Commission approval.3
The application was preliminarily categorized as ratesetting and no party appealed this categorization. ORA filed a protest of the application on August 14, 2000. No other protests were filed. A prehearing conference was held on September 25, 2000, and ORA filed a report on the proposed acquisition on November 9, 2000. ORA objected that (1) Watertek's acquisition of Grand View Gardens would lead to a rate increase of approximately 85% in order for Watertek to avoid operating the water system at a loss, and (2) aside from employing an operator with a Class II Water Treatment certificate issued by the State Department of Health Services (DHS), Watertek offers no improvement in service and has not established financial, managerial, and technical capability to operate the water system.
Public participation hearings were held on December 11, 2000 in Porterville, and were attended by only a small number of customers. At the PPH, customers expressed concern regarding nitrates in the water, the quantity of the water and the possibility of increased rates. However, the customers did not oppose the transfer of the Grand View Gardens system to Watertek. An evidentiary hearing was held on December 18, 2000. At the hearing, ORA withdrew its protest.
Watertek and ORA filed a motion for settlement and a proposed settlement on February 6, 2001. The settlement was not signed by McComb because she was hospitalized at that time. However, McComb filed a statement of support for the settlement on February 20, 2001.
The proposed settlement, attached as Appendix A, states that the parties have resolved issues raised in the application and ORA's report, so that ORA now believes that the transfer of certain assets of Grand View Gardens to Watertek would meet the requirements of Public Utilities Code Section 851 and would serve the public interest. The parties agreed that the ratebase for Grand View Gardens will be equal to the $1 paid by Watertek for certain assets of Grand View Gardens and that rates will not be directly affected by this application, because Watertek must separately apply for any rate increase. The parties further agreed that any subsequent rate increase granted by the Commission shall be determined according to Decision (D.) 92-03-093, which sets forth the procedure and policies for setting rates for small water companies. In addition, the parties acknowledged that rates may increase in the near future because of the need for repairs and upgrades to the system and the reduction of nitrate levels in the water. With the submission of the settlement, the application is uncontested.
1 Watertek and/or Smith have also previously operated the Spreckels Water System and the Indian Springs Mutual Water Company near Salinas, California and the City of Soledad water system. 2 Based on Aquasource's proposed assignment of the agreement to Watertek, the Commission dismissed Aquasource's application to acquire certain assets of Grand View Gardens, Application (A.) 99-08-025, on February 3, 2000. The previous assignment by Aquasource to Watertek is without effect, because Aquasource did not first obtain Commission approval. 3 The original cost of the Grand View Gardens property transferred to Aquasource was $49,659. The depreciation reserve as of January 1, 1999 was $39,753. Therefore, the net book value of the Grand View Gardens assets that McComb attempted to transfer to Aquasource was $9,906.
