1. Background and Procedural History
By this application, which was filed on November 28, 2006, David R. Robertson (Robertson), on behalf of Seller, and Richard M. Dewante (Dewante), on behalf of Buyer, seek the Commission's authority, pursuant to Public Utilities Code sections 851 through 854, to consummate the sale and purchase of all of Seller's assets to Buyer.1 The assets involved are the tangible and intangible property comprising Seller's plant and water supply system, which serves nearly 120 customers in the Lake Tahoe area.
The applicants actually concluded this transaction on April 3, 1996, and the nominal Seller identified in the joint application no longer exists as a legal entity. As Dewante recently explained to the Commission:2
Lake Forest Utility Co., Inc. ... is not the owner of the assets now, but was the corporation from which the assets were purchased. [It] was owned by David R. Robertson, the transferring party in this application. [Lake Forest Utility Co., Inc.] was dissolved sometime after the date of sale in 1996. The owner of the assets is Tahoe Park Water Co. ... (formerly Tahoe Park Utility Co.) dba Lake Forest Water Co.
Under sections 851 through 854, the 1996 transaction should have been approved by the Commission before it was consummated in order to be effective,3 but approval was not timely sought, and the Commission and Buyer have conducted themselves as though the transfer was valid from the outset. The applicants (through their predecessor entities) did attempt to obtain approval shortly after they concluded the sale and purchase of the system, but in Re: Tahoe Park Water Company, Inc., Decision (D.) 97-02-039, (1997) 73 CPUC2d 715, the Commission denied the application without prejudice for reasons that are not material here. Although the system had actually changed hands and was already being operated by Dewante by the time that application was filed, the "outlaw" status of the entity was somehow disregarded in the course of our formal regulatory oversight of the company, even in the course of a recent rate increase proceeding. Thus, the issue lay dormant until the present application was filed.4
The proceeding was initially assigned to Examiner Kevin P. Coughlan, but was reassigned to Administrative Law Judge (ALJ) Victor D. Ryerson on March 28, 2007. On May 21, 2007, the Commission's Division of Ratepayer Advocates (DRA) sought leave to file a late protest, citing its concerns that the application was incomplete and failed to comply with Commission Rules of Practice and Procedure (Rules) 3.6. Specifically, DRA was concerned that the application lacked an up-to-date description of the property to be conveyed because it incorporated by reference the original 1996 purchase and sale agreements, and was also concerned because the application did not contain Buyer's current balance sheet and income statement. The ALJ granted DRA's request for leave to file its protest.
Late-filed protests were also filed by Lake Forest Public Water Advocates (PWA) and Tahoe City Public Utility District (TCPUD), who claim that public ownership of the system would be preferable to its current private ownership, and who are formulating possible plans to annex the system to TCPUD's system. By ruling dated September 11, 2007, PWA was permitted to intervene as an interested party to the extent that its contentions are reasonably pertinent to the issues presented by the application, as provided under Rule 1.4. TCPUD was permitted to intervene subject to the same stricture, i.e., that its participation would be limited to those matters which are reasonably pertinent to the issues presented by the application.
The ALJ conducted a prehearing conference (PHC) in Tahoe City on October 2, 2007, to identify the parties and establish the contested issues. At that time DRA stated that Buyer had furnished additional information to DRA in response to a data request, and that DRA would probably withdraw its protest once it had analyzed the new information. Consequently, the ALJ granted DRA the opportunity to analyze the new information and determine whether or not to maintain its protest.5
TCPUD and PWA contend that section 854, subdivision (d), requires the Commission to consider reasonable alternatives as part of its determination whether to approve the transaction,6 and that the possibility of a near-term TCPUD acquisition of the system is such an alternative. Accordingly, at the PHC TCPUD and PWA asked for scheduling of sufficient time to enable TCPUD to formulate the plan to acquire and improve the system before a hearing was held.
At the conclusion of the PHC, the ALJ established a briefing schedule to enable each party to explain its position and more fully identify the material issues. The ALJ did not set an evidentiary hearing (EH) at the time of the PHC, because these issues were not yet settled, but instead indicated that consideration of the application would be deferred to allow the parties to develop their plans for improving the system before he scheduled the EH.
During the ensuing period, the need to clarify the ownership of the system became acute, because DPH told Dewante that it was unwilling to process Buyer's application for Proposition 50 funding for certain improvements until that question was answered to DPH's satisfaction. The absence of this information threatened funding during the current annual cycle, and might have eliminated the availability of those funds altogether. On August 14, 2008, the assigned Commissioner and the ALJ issued a joint ruling requiring the applicants to file and serve supplemental information to clarify the respective applicants' current relationship, and explain how Buyer satisfied the Commission's financial and other requirements to acquire and operate the system. The ruling also required a specific description of the applicants' plans for improvement of the system.
In response to the ruling, Dewante furnished a letter providing details about the occurrence of the sale and purchase in 1996.7 The response also included a copy of a detailed water supply and distribution system improvement plan September, 2008, Lake Forest Water Supply and Distribution System, Improvement of Facilities Plan (Facilities Plan) that was current as of September 2, 2008.
PWA and TCPUD filed responsive comments on Buyer's Facilities Plan, and TCPUD filed a detailed plan setting forth how it proposed to acquire the system from its present owner and incorporate it into the existing TCPUD system.
Following the filing of these documents, the ALJ held two public participation hearings (PPHs) in Tahoe City on October 10, 2008, to receive public comments and suggestions for deciding the application. At the conclusion of the PPHs he determined that the record was sufficient to resolve the issues that were before the Commission without conducting a formal EH, and following a 30-day period during which additional written comments were accepted, the proceeding was submitted on November 10, 2008.
1 All statutory references hereafter are to provisions of the Public Utilities Code, unless specifically noted otherwise.
2 Letter of Richard M. Dewante, dated September 2, 2008, in response to Joint Ruling of Assigned Commissioner and Assigned Administrative Law Judge, dated August 14, 2008.
3 Section 854, subdivision (a), provides that an acquisition accomplished without prior Commission authorization "shall be void and of no effect."
4 The current application was signed by Robertson as well as Dewante, but Robertson has otherwise taken no active part in this proceeding. Dewante has consistently appeared and participated with the explanation that he is the owner and operator of the system.
5 DRA subsequently filed a motion for leave to withdraw its protest, and we grant that motion in our Order.
6 Section 854, subdivision (d) states:
When reviewing a merger, acquisition or control proposal, the commission shall consider reasonable options to the proposal recommended by other parties, including no new merger, acquisition or control, 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.
7 Following filing of the Buyer's response to the ruling and Buyer's compliance with various DPH informational requirements, DPH advised the Commission that it would release the Proposition 50 grant funds to Buyer to accomplish certain improvements for meeting water quality standards.
