II. Background

CWS filed test year 2002 general rate case (GRC) applications for 15 of the 24 districts in which CWS provides water service, affecting approximately 287,000 customers. These proceedings were consolidated and largely resolved by Decision (D.) 03-09-021, dated September 4, 2003. In that decision, the Commission took official notice of CWS's 2001 annual report to its shareholders. The annual report explained that CWS and its affiliates, owning more than 900 real estate properties, embarked on a multi-year process to liquidate over $10 million in property. CWS expected this real estate program to continue for a period of several years, so that, through sales or leases, it could realize the value of surplus properties no longer necessary or useful. In 2001, CWS completed $3.9 million in pretax sales and expected to complete sales in excess of $3 million in 2002.²

The Commission could not conclusively determine in D.03-09-021 that the properties included in the real estate program of CWS were not subject to Section 851,³ nor could the Commission determine the proper ratemaking treatment of the amounts realized from those transactions. Thus, D.03-09-021 required CWS to submit an application that fully explained its real estate program from its inception, including rationale and support for removing property from rate base. CWS was also required to seek authority to establish an IMA pursuant to Section 790, the Water Utility Infrastructure Improvement Act of 1995. Finally, the decision required CWS to file an application for authority to replace its Chico operations and customer centers with a combined operations and customer center.

CWS filed Application (A.) 03-12-008 seeking authority to establish its IMA and to explain its real estate program. Approximately eight months later, CWS filed A.04-08-017 seeking authority to replace its Chico operations and customer centers. These applications were consolidated into one proceeding on October 6, 2004. We first address the Chico District issues.

² D.03-09-021, mimeo, p. 76.

³ Section 851 provides that every subject transaction made other than in accordance with the order of the Commission authorizing it is void but that nothing in this section prevents the sale by any public utility of property which is not necessary or useful in the performance of its duties to the public.