II. Background and Procedural History
Hillview is a small investor-owned water company that serves the communities of Oakhurst and Coarsegold in Madera County. At the time of the events under investigation it served approximately 1300 customers, although its service area is developing rapidly. Respondent Roger L. Forrester (Forrester) is the company's president, and one of its two shareholders.
RRB was a branch of the WD.1 Since January 1998 it has handled all formal water proceedings, and represented the interests of Hillview's customers in this proceeding following a transfer of authority from the Large Water Branch (LWB) of the WD.
In their Motion Hillview and RRB propose that we adopt the Settlement as "a complete resolution of all issues in the present proceeding" (p. 3). We instituted the proceeding, a broad inquiry into Hillview's management activities, on the basis of the results of a WD audit and review of Hillview's operations that disclosed a number of apparent irregularities in its accounting methods, dealings with customers, and reporting of information to the Commission. WD asked the Commission's Consumer Services Division (CSD) to pursue a formal enforcement action, and CSD sought an order from us to initiate this formal investigation. In response we opened Investigation (I.) 97-07-018 by issuing the OII on July 16, 1997.
The OII states that our investigation will review alleged violations of statutes and regulations we enforce, and impose sanctions, order refunds, and establish rates, as appropriate. It also states that we knew the (California) Department of Justice was investigating respondents Hillview and Forrester.
The OII characterizes CSD's supporting allegations as "serious." According to the OII, CSD asserted it could demonstrate that the respondents violated a number of basic regulatory requirements, and submitted falsified documents or inaccurate information to the Commission. The respondents were placed on notice of the following specific CSD allegations:
1. The respondents violated the terms of prior Commission orders and instructions to water utilities on how utilities are to extend service to new customers.
2. The respondents submitted to the Commission staff copies of service extension contracts which had pertinent information blocked out during reproduction.
3. The respondents charged customers unauthorized fees for the connection of service and, in turn, related the amounts in contravention of tariff and service extension requirements to shopping center developers.
4. The respondents diverted revenue collected expressly to repay a Safe Drinking Water Bond Act (SDW) loan from a special account, and applied the money to funds for other purposes, including Forrester's personal business dealings, in violation of Decision (D.) 91560 and D.87-09-029. Included under this allegation is an additional assertion that in submitting Advice Letter (AL) 53 to seek greater authority to expand facilities and increase indebtedness, Hillview misstated the level of the special fund account because it had diverted funds to other uses.
5. The respondents overstated long-term debt and Hillview's plant account by showing loans obtained by Forrester for personal business as utility purpose indebtedness and for expenditure on plant used by the water utility.
6. The respondents secured a $350,000 personal loan from a developer, then asked the Commission for authority to receive a Small Business Administration (SBA) loan to repay it, without disclosing that the loan being repaid was for a personal or non-utility purpose.
The OII placed both Forrester and Hillview on notice that they could be fined or sanctioned for these activities, if proven.
The OII ordered a prehearing conference (PHC) to be held expeditiously before an Administrative Law Judge (ALJ), and directed CSD staff to serve its audit or investigatory report on the respondents not more than ten days before the PHC. No report was ever prepared by CSD.2 Instead, LWB prepared a report.3 That report (1997 Report) was not completed until late November 1997, and the first PHC was held on December 4 in Oakhurst.
Counsel from the Commission's Legal Division appeared on behalf of the LWB at this PHC. He emphasized that he represented WD. (Transcript (Tr.), December 4, 1997, p. 18.) He was accompanied by a staff member from LWB. Appearances were also made in this proceeding on behalf of Mr. and Mrs. Richard Cavin (Cavin), aggrieved customers who had earlier filed Case (C.) 96-07-003 alleging related (and apparently overlapping) tariff violations by Hillview, and by six other interested parties.
Both respondents appeared at the PHC through attorney David A. Ebershoff (Ebershoff). He made the following representations on behalf of his clients:
"We . . . have a scheduling issue that needs to be addressed today, and that is that as the PUC is aware, . . . substantially all of the company's documents are currently in the possession of the State Department of Justice, and we are not in the position to go forward in this proceeding until we have access to the documents . . . " (Tr., December 4, 1997, p. 19.)
The ALJ directed the respondents to file a written motion if they sought to stay the proceeding on such grounds, and they subsequently filed that motion.
1 After the OII was issued RRB became a part of our Office of Ratepayer Advocates. 2 CSD did not enter an appearance at the PHC, nor at any other time in this proceeding. Why its advocacy role was subsequently assumed by RRB, despite our initiation of this investigation at CSD's request with the direction that CSD prepare the investigative report, is not explained in the record. 3 From October 1996 until January 1998 LWB was responsible for reviewing refinancing for, and auditing of, Hillview.
