STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

December 20, 2001 ITEM 1

1/23/2002

TO: PARTIES OF RECORD IN INVESTIGATION 00-05-020

This is the proposed decision of Administrative Law Judge (ALJ) DeUlloa previously designated as the principal hearing officer in this proceeding. It will be on the Commission's agenda at the next regular meeting, which is scheduled for January 23, 2002. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180 a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days before hand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.

The Commission may act at the regular meeting on January 23, 2002, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on communications.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

Lynn T. Carew, Chief

Administrative Law Judge

LTC: avs

ALJ/JRD/avs DRAFT Item 1

1/23/2002

Decision PROPOSED DECISION OF ALJ DEULLOA (Mailed 12/20/2001)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Investigation on the Commission's Own Motion Into the Status, Rates, Rules, Operations, Service, Facilities, Contracts, and Practices of the Union Pacific Railroad Company in the Supply, Distribution, and Sale of Water by the Keene Water System to the Communities of Keene and Woodford in Kern County.

Investigation 00-05-020 (Filed May 18, 2000)

(See Appendix B for a list of appearances.)

OPINION FINDING KEENE WATER
SYSTEM DEDICATED TO PUBLIC USE

This decision addresses the issue of whether the Keene Water System operated by Union Pacific Railroad Company (Union Pacific or Respondent) has been dedicated to public use. We find that a dedication has occurred and that Union Pacific is operating a public utility water system in the communities of Keene and Woodford in Kern County.

I. Procedural Background

On May 18, 2000, we issued an order instituting investigation (OII) to determine whether the Keene Water System, which is currently operated by Union Pacific, is a public utility water system, as defined by Section 2701 of the Public Utilities Code.¹

This Commission has never regulated the Keene Water System as a public utility. However, based on the information in the declarations of employees of the Department of Health Services and of Commission staff member, the OII stated that the Keene Water System may by its conduct have become a public utility as described in Section 2701 and, thus, subject to the Commission's jurisdiction. Accordingly, the Commission, on its own motion, instituted this investigation.

As noted in exhibits to our investigation, this matter is also in Kern County Superior Court where the California Department of Health Services (DHS) has petitioned to appoint a receiver. DHS has found an individual who has experience in operating the Keene Water System and who has agreed to be appointed receiver. The court ordered Union Pacific not to abandon ownership of the Keene Water System, to continue to operate and maintain it, and to continue to provide water to existing residents and customers pending the results of the Commission's investigation and further hearing on the petition.

Today's decision examines whether the operation of the water system has changed over the intervening years, as the railroad's water use for railroad operations declined and ceased altogether, and the railroad entered into agreements with various customers and modified and updated the system.

Two days of hearings were held on February 13 - 14, 2001, and two public participation hearings were held on August 4, 2000, and January 29, 2001. No customers were present at the first PPH. At the second PPH, several customers, including Bridget Beard (Beard), expressed their concerns about poor water quality, resale prospects for their homes, and the connection of Tony Martin to the line as a special favor when others similarly situated had requested and been denied a direct connection. The following parties presented testimony: Union Pacific; the Office of Ratepayer Advocates, Water Branch (ORA); Stonybrook Corporation (Stonybrook); and Beard. The assigned administrative law judge granted Stonybrook and Beard leave to serve testimony late and ORA leave to serve supplemental testimony. Parties filed opening briefs on March 12, 2001, and reply briefs on March 19, 2001.