Background

In Decision (D.) 04-01-051, the Commission approved the transfer of indirect control of Valencia Water Company (Valencia) from Newhall Land and Farming Company to Lennar Corporation and LNR Property Corporation. Lennar Corporation and LNR Property Corporation each hold a 50% interest in the intermediary entity that indirectly owns Newhall Land and Farming Corporation. The Commission imposed a series of conditions on its approval of the transaction which required, among other things, that Valencia ratepayers be insulated from any financial effects of the transaction and that Valencia maintain its high standard of customer service and community involvement.

LNR Property Corporation, and its indirect 50% ownership of Valencia, is the subject of the instant application. On December 16, 2004, Riley Property Holdings, LLC, Riley Mezzanine Corp., CB Riley Investor LLC, Cerberus Partners, L.P., Cerberus Associates LLC, LNR Property Corporation, and Valencia filed this application seeking Commission authorization for Riley Mezzanine Corporation to acquire LNR Property Corporation. The other entities are upstream owners of Riley Mezzanine Corporation. The instant applicants all agree to comply fully with the conditions imposed by the Commission in approving the Lennar transaction in D.04-01-051.

Protests to the application were filed by Public Citizen, Water for All (Public Citizen), The Friends of the Santa Clara River (Friends), and the Angeles Chapter of the Sierra Club (Sierra Club). Public Citizen stated that its is a national consumer rights organization and requested that the Commission hold evidentiary hearings on how the proposed merger would benefit Valencia's ratepayers. Public Citizen also stated that Valencia has a "poor track record of weak public accountability and environmental mismanagement."

Friends urged "a careful review of all aspects of this matter" by the Commission, particularly whether Valencia was in compliance with D.04-01-051 conditions. Friends stated their belief that Valencia is not complying with condition 8, which requires that Valencia maintain or improve practices and policies for addressing the ammonium perchlorate pollution problem. Friends also expressed concern that preferential treatment for new service extensions may be granted to real estate development projects owned by the parent companies.

The Sierra Club stated that it is concerned with protection of Valencia ratepayers as well as the public health due to the perchlorate pollution. Sierra Club also expressed concern with out-of-state owners as well as preferential treatment being given to affiliated land companies real estate projects.

The applicants filed a reply to the protests and contended that the protests failed to raise any substantive issues regarding Riley Mezzanine's acquisition of LNR Property Corporation and indirect control of Valencia.