Proposed Conditions of Approval

As noted above, the assigned ALJ issued a ruling setting out proposed conditions of approval for the transaction. These conditions were based on sets of conditions included by the Commission when authorizing similar transactions.

The conditions require, among other things, that the transaction will have no effect on the Commission's authority over Valencia. Valencia is required to continue to offer its customers high quality public utility water service, and to maintain its high level of community involvement.

Significant restrictions are imposed on all transactions between Valencia and the parent companies, Lennar and LNR. Financial transactions are particularly limited, and annual reports are required. Ratemaking requirements are also imposed, with all costs of the acquisition excluded from Valencia's rate base.

All protestants supported the proposed conditions. Valencia generally agreed with the conditions, but offered several minor changes and raised one substantive issue. The proposed conditions required that a Valencia affiliate, not Valencia, perform unregulated operations. Valencia objected, contending that, while Valencia does not currently offer any such services, it may wish to do so in the future and that, like other water utilities, it should be allowed to do so.

The conditions have been modified to allow Valencia to conduct unregulated operations but only if such operations will not adversely affect Valencia or its ratepayers. To the extent Valencia chooses to conduct unregulated activities, Valencia must accurately account for all employee and officer time, as well as the fully allocated cost of all Valencia property used in the unregulated activities. The conditions are Attachment B.