Evaluation of Public Interest
To determine whether this proposed transaction is in public interest, we look primarily to its effect on ratepayers. Newhall, a real estate development company, currently owns Valencia. After the transaction, Lennar and LNR, both large real estate development companies, will own Newhall and, indirectly, Valencia. In short, Valencia will change from being owned by a relatively modest real estate developer to being owned by two large real estate developers. As noted above, we have previously found that Newhall has little day-to-day involvement with Valencia.
Other than speculation about the affects of out-of-state ownership,4 the protestants have not demonstrated any specific impact on ratepayers. Virtually all of the Conditions are designed to ensure that ratepayers are fully insulated from any effects of the transaction. Conditions 12, 13, 14, and 15 impose strong ratemaking prohibitions to Lennar and LNR costs being included in Valencia's revenue requirement. Condition 6 requires that Valencia maintain its high quality customer service and community involvement, and condition 7 prohibits closing local offices.
Based on the Conditions, and Newhall's limited role in Valencia's operations, we conclude that ratepayers will not be materially affected by this transaction. Valencia will remain a stand-alone public utility water company, with all services being provided by its own personnel and departments. In contrast to some merger acquisitions, Lennar and LNR do not plan for operational consolidations to achieve cost reductions, and Valencia is a modest component of Newhall's assets.5
Our inquiry into this transaction, however, does not end with ratepayers. We look also to whether this transaction will adversely affect employees or the state and local economies. Condition 5 prohibits any adverse changes to Valencia's employee policies, and Condition 11 requires that all collective bargaining agreements be honored. The applicants stated in their brief that they accept these conditions. These requirements are sufficient to ensure that employees will not be adversely affected by the transaction.
Turning to state and local economies, we are aware of the role that mergers and acquisitions play in enabling businesses to grow and prosper. While we have no desire to impede business development, our duty to public utility customers requires that we balance the need to protect these customers with the overall objective of enhancing economic development. We are satisfied that the conditions we impose in today's decision strike that the balance.
Therefore, we find that the proposed change of indirect control of Valencia from Newhall to Lennar and LNR, as conditioned by this decision, is in the public interest.
4 Applicants point out that current owners of nearly 40% of Newhall are based out-of-state, east of the Mississippi River. 5 Valencia's net revenues of $2.6 million are 6.4% of Newhall's $40.5 million 2002 net revenues.
