III. The 1997 Report
As explained above, the 1997 Report had been issued shortly before the December 4 PHC, and copies were first made available for public distribution at the PHC.4 The 1997 Report and makes the following findings about Hillview's conduct:5
1. Hillview demanded and charged its customers fees in violation of several provisions of the Pub.Util. Code, and violated Pub. Util. Code Section 581 and Rule 1 of the Commission's Rules of Practice and Procedure (Rules) by providing false information to the Commission. Specifically, LWB found that Hillview withheld the true number of customers who paid unlawful fees for supply and storage, understated the amount it collected from such fees, and misrepresented certain facts to LWB during its audit.
2. Hillview submitted falsified documents to the Commission in violation of Pub. Util. Code Section 581 and Rule 1.
3. Hillview caused the Commission to issue a resolution, Resolution (Res.) F-644, authorizing a loan from the National Bank of Cooperatives (CoBank) in excess of what otherwise would have been needed after using the loan proceeds to repay its loan from DWR.
4. Hillview violated Pub. Util. Code Section 287 by knowingly making false statements or representations to the Commission, thus influencing the Commission to authorize Hillview to issue evidence of indebtedness.
5. Hillview obtained Commission authorization for the loan from CoBank in the amount of $540,000 by representing that the loan was intended to refinance obligations of the utility, then used part of the loan proceeds to repay a personal loan of respondent Forrester and his wife.
6. Hillview violated Pub. Util. Code Sections 818 and 825 by failing to obtain prior Commission authorization for certain loans, and by underreporting the amounts of the loans it had obtained.
7. For 1994, the test year on the basis of which its present rates were adopted, Hillview overstated its ratebase in the amount of $132,386 by overstating its account for plant in service and understating contributions in aid of construction (CIAC). This resulted in the adoption of rates to produce annual revenues of $24,080 higher than should have been authorized.
8. Hillview overstated its liability in its books by $47,980 because of a loan from Forrester that was null and void because it violated Pub. Util. Code Section 825.
Based upon these conclusions, the 1997 Report recommended that the Commission take various measures to address Hillview's alleged misconduct. Among these recommendations were:
1. Hillview should refund to all affected customers all money unlawfully collected, together with interest at the rate of seven percent from the date collected until repaid.
2. Hillview should be fined at least $500 for each instance of charging an unauthorized fee for supply and storage.
3. Hillview should be fined at least $20,000 for having provided false information to the Commission, plus additional sums for submitting falsified documentation of individual customer charges.
4. Hillview should be ordered to pay $172,125, plus interest at the rate of seven percent, to reduce the $940,000 loan from CoBank authorized by Res. F-632 and Res. F-644, and the surcharges established to repay that loan should be reduced to reflect that $20,384 less in revenue is now needed.
5. The Commission should reduce the authority to borrow $540,000 from CoBank granted in Res. F-632 by $350,000, and correspondingly order Hillview to repay $350,000, the amount of the personal loan of Forrester and his wife, to CoBank. Further, Hillview should be ordered to remove from its records references to this loan as "Loan from Individual," adjust all pertinent accounts, and refile its annual report for 1992 and 1993 to reflect the corrected balances for Long Term Debt, Utility Plant, Accumulated Depreciation, and CIAC.
6. Hillview should refund to ratepayers the $24,080 annual excess revenues it has collected since March 1994, and reduce its current rates by $24,080.
7. Hillview should write off the $47,900 loan for lack of support, and file a revised annual report to reflect this change.
The 1997 Report also recommends that the Commission institute a second phase of this investigation to address all matters not resolved by the first phase.
The OII contemplated that after the PHC was held the respondents would serve prepared testimony in response to the 1997 Report, and the matter would then proceed to an evidentiary hearing. However, further proceedings were held in abeyance for more than two years after the December 4 PHC because of the Justice Department's then-pending criminal investigation, and the respondents were not required to respond to the Report at that time. On April 25, 2000, the ALJ issued a ruling (Ruling) to resume the investigation after receiving written confirmation that Hillview's records had been released by the Department of Justice, and that the criminal investigation had been closed.6 See Ruling, Appendix A, p. 4 (Release Order dated November 4, 1999, of the Superior Court for the County of Madera in Case No. CR01558).
4 The 1997 Report consists of two volumes, a narrative volume with the investigators' explanation of the audit, findings, and recommendations, and a volume of exhibits. These have respectively been marked as hearing exhibits (Exs.) D-1 and D-2. 5 In addition to these findings, LWB also concluded that Forrester was guilty of perjury because of the role he personally played in verifying annual reports, and that he had violated Pub.Util. Code Section 827 by knowingly making false statements or representations before the Commission. 6 This communication from the Department of Justice included an earlier letter to our LWB Staff, explaining that the criminal investigation was dropped because the statute of limitations had already run on the criminal offenses by the time that Department obtained our records.
