V. Discussion

A. Rule 15

The relevant portions of Rule 15 of SJWC's tariffs are set forth below.

Rule 15.A.1.a provides in pertinent part that:

"all extensions of distribution mains, from the utility's basic production and transmission system or existing distribution system, to serve new customers, except for those specifically excluded below, shall be made under the provisions of this rule unless specific authority is first obtained from the Commission to deviate therefrom. ..."

Rule 15.A.1.b provides that:

"extensions primarily for fire hydrant, private fire protection, resale, temporary, standby, or supplemental service shall not be made under this rule."

Rule 15.D.1 states that:

"the cost of distribution mains designed to meet the fire flow requirements set forth in Section VIII.1(a) of General Order No. 103 is to be advanced by the applicant. The utility shall refund this advance as provided in Sections B.2 and C.2 of this Rule."

Rules 15.B.2 and C.2 contain detailed refund provisions.

B. Rule 15 Provides for Refunds of the Costs Advanced for Mains Designed to Meet Fire Flow Requirements

Rule 15.D.1 provides for the opportunity for refunds for costs advanced for distribution mains designed to meet the fire flow requirements set forth in Section VIII of GO 103. The minimum requirements under Section VIII.1 (a) of GO 103 for the Technology Park are 2,000 gpm for light industrial use. Because the costs at issue in this case have been advanced for a distribution main designed to meet, among other things, the fire flow requirements of GO 103, these costs are refundable according to Rule 15.

SJWC argues that Rule 15 should not apply here, because Rule 15.A.1.b excludes extensions for, among other things, fire hydrant and private fire protection. According to SJWC, the main extension falls squarely within this exception.

In interpreting tariffs, the Commission has held that the tariff language must be construed as a whole, and should be given a fair and reasonable construction that avoids absurd results or would render some part of the tariff a nullity. (See D.98-12-086, 1998 Cal. PUC LEXIS 1014, 19-20.)

The provision of Rule 15.A.1.b that SJWC cites excludes from Rule 15 extensions "primarily for fire hydrant and private fire protection", but does not specifically refer to extensions designed to meet fire flow requirements. The parties have focused on the 16-inch main's ability to meet the applicable fire flow requirements. Since section D.1 specifically refers to mains designed to meet fire flow requirements, the specific references in section D.1 should prevail over the more general references in section A.1.b. This is a reasonable construction that would avoid rendering some part of the tariff a nullity.

We are not persuaded that section D.1 applies to existing mains which comply with GO 103's fire flow requirements when installed, as opposed to mains needed to meet GO 103's requirements when the property owner makes changes in land use. The plain language of section D.1 is not so limited.

Our conclusion that the specific language of section D.1 should prevail over the exceptions in section A.1.b. is equitable, because under this construction subsequent commercial developers must bear a portion of the expenses they would otherwise be required to advance for system improvements, in absence of the 16-inch main financed by WTA. It is also equitable given that the record established that the 16-inch main is in fact used by SJWC to provide domestic service to Campbell Technology Park, and it may also be providing domestic use to other customers. Thus, in actuality, this main is not being used only to meet fire flow requirements.

C. WTA's Requested Relief Is Consistent With Prior Commission Precedent

The relief WTA seeks is consistent with Commission precedent. For example, in Humber v. North Gualala Water Co., D.93-09-007, 50 CPUC2d 629 (Humber) the complainant owned undeveloped property. She sought, among other things, a partial refund of monies advanced for a main extension to provide service to a proposed motel project in compliance with GO 103's fire flow requirements. The portion of the main extension at issue was needed only to serve complainant's property, although other potential customers might later connect to the main extension. The water utility denied complainant any refund of the amounts advanced for the main extension pursuant to Rule 15 of its rules.⁴

The Commission ordered the water company to "refund a pro-rata amount, reasonably determined, assessed on subsequent commercial users who obtain service through the 12-inch main that otherwise would not have been available absent the facilities contributed by the complainant." (Humber, 50 CPUC2d at 634, Ordering Paragraph 4.)

The Commission reasoned that Rule 15 is intended to provide a method to construct necessary distribution facilities for commercial development with minimum financial risk to the utility and its consumers from potentially uneconomic or speculative developments. Specifically, by requiring advances from commercial developers, the Commission intended that water utilities, particularly the smaller ones, will "(1) avoid making capital investments that will increase rates paid by other customers, (2) avoid impairing the utility's financial health, and (3) avoid jeopardizing the adequacy of its service to other consumers." (Id. at 631.)

The Commission then offered the following interpretation of Rule 15:

"...Rule 15 is not intended to require a nonrefundable payment by a developer when an extension accomplishes system upgrades that the utility would be required to make in any event, or when the extension will within a reasonable time permit service to other builders who follow." (Id. at 632, emphasis added.)

The Commission also acknowledged that to the extent service to other commercial customers seeking additional service would not be available without the new main, the "intent of Rule 15 is that subsequent commercial users should share a portion of the cost of the new main, and that such payment should be refunded to the original contributor." (Id.)

We agree with WTA that the facts in Humber are similar to those in this case. In both cases, a main extension was required to provide service to a new project and to meet applicable fire flow requirements, and the existing water system was inadequate to provide necessary service to the particular project. In both cases, future customers might require service that can only be provided by connecting to the new main. Therefore, Humber supports the result we reach today.

SJWC argues that Humber does not apply to this case for several reasons. According to SJWC, in Humber, the required new main was for both domestic and fire flow service, and before the main was built, the Department of Health Services (DHS) issued a compliance order requiring the utility to construct a 12-inch main from a storage tank to better provide fire flow and pressure in a nearby commercial area. According to SJWC, neither fact is present in this case.

However, in Humber, only 500 feet of the 12-inch main included in the Humber estimate was main that the utility must replace under the DHS enforcement order. Moreover, the Commission held refunds to be appropriate under Rule 15 not only when the extension accomplishes a system upgrade that the utility would be required to make in any event, but also when the extension will within a reasonable time permit service to other builders who follow. (Humber, 50 CPUC2d at 632.)

According to SJWC, the most important distinction between the two cases is that in Humber, the motel was a new development on previously undeveloped property, and the issue in Humber involved possible refunds from new developments, whereas in this case, complainants seek the opportunity to obtain refunds from existing commercial customers who may upgrade their service. In other words, SJWC might not oppose WTA's claim for a proposed refund if it were developing a project in a previously undeveloped area. We believe that this is a distinction without a difference in the case before us.

The Commission has previously described Rule 15 as originating during a time when growth into new areas was desirable. "Rule 15 was developed as a consequence of the population explosion in California since the 1940s which necessitated a construction boom to provide homes for these people and water to serve those homes." (Panamint Construction Co., Inc. v. Southern California Water Co., D.82-02-017, 8 CPUC2d 135, 138-139.)

Since the 1940s, land has become much more scarce in the Silicon Valley/South Bay area, and unrestrained development of undeveloped land often raises environmental concerns. Applying Rule 15's refund provisions to the facts of this case will encourage "in-fill" development of previously developed but underimproved parcels in urban and suburban areas, because the initial developer of an "in-fill" project will not need to fund the entire cost of infrastructure (such as water mains), to serve the project, if, within a reasonable time, subsequent developers use this infrastructure. The City of Campbell has designated the area surrounding the 16-inch main as a redevelopment area. WTA alleges that the 52 properties along the 16-inch main have not been intensely developed because of insufficient infrastructure to meet the fire flow requirements. Thus, it is the city's policy to encourage redevelopment in this area, and it would be inequitable under these facts to place the burden for the full cost of the main extension on the first entity to more intensely develop this area. This is especially the case when the only ratepayers that would be affected by WTA's requested opportunity for refund are the customers on the parcels adjacent to the 16-inch main who require enhanced commercial service made possible only through the 16-inch main.

D. SJWC's Other Arguments

SJWC also argues that the refund provision which WTA seeks constitutes a connection fee prohibited by Rule 16 of its tariffs. However, Rule 15 applies in this case, and Rule 16.B.1 provides an exception when the fee is "otherwise provided in the utility's main extension rules," i.e., in this case, Rule 15. Moreover, in Humber, the Commission did not view Rule 16 as an impediment to ordering a refund provision.

SJWC also argues that there are many administrative difficulties in implementing WTA's requested relief, and it will be necessary to develop an elaborate tracking system for an undetermined, lengthy period of time. However, Rule 15 provides for the opportunity for refunds in this case. The parties did not specifically address the refund provisions set forth in Rule 15.B.2. However, Complainants' proposal is consistent with the intent of Rule 15 and Humber, and we adopt it here as set forth below. The remedy we grant below is circumscribed, requiring SJWC to provide for refund provisions for 10 years, and is triggered only when one of the 52 parcels adjacent to the 16-inch main is developed or improved in a way that requires enhanced commercial water service only made possible by the installation of the 16-inch main.

Finally, SJWC argues that granting WTA's requested relief would be a significant change in industry practice not appropriate to decide in this complaint case. However, in Humber, a complaint case, the Commission decided similar issues. As in other complaint cases, we resolve the immediate dispute between WTA and SJWC based on the specific facts of this case.

E. Specific Relief Requested

WTA requests us to order SJWC to deliver to WTA a revised main extension agreement. Under the revised agreement, SJWC would refund to WTA a pro-rata amount, reasonably determined, assessed on subsequent commercial users who obtain service through the 16-inch main commencing in the 10-year period following completion of the main, if the service otherwise would not have been available absent the facilities contributed by WTA.

In testimony, WTA proposed a more detailed method for determining the pro-rata amount: the cost of the main extension would be divided by the number of parcels that could potentially take advantage of the 16-inch main, and new commercial customers which connect to the line would be required to pay a pro-rata share of the line's total cost. Under this approach, the pro-rata share would be $13,200 per parcel.

In its brief, WTA explains that the redevelopment plan for the area adjacent to the 16-inch line indicated that the City of Campbell might be instrumental in combining parcels as an incentive to redevelopment. Therefore, WTA indicates that allocation could be based on frontage feet, rather than number of parcels, to account for the possibility that several parcels might be combined as part of the redevelopment process. Under this alternative approach, according to WTA, the cost would be $188.63 per frontage foot.

SJWC argues that WTA's requested monetary relief is too vague. With respect to WTA's alternative allocation proposal, SJWC argues that the correct number should be $94.31 per frontage foot, rather than $188.63, under the assumption that the main serves both sides of the street.⁵

In Humber, we directed defendant to refund "a pro-rata amount, reasonably determined", for a period of 10 years. (Humber, 50 CPUC2d at 634, Ordering Paragraph 4.) We issue a similar order today. However, because WTA offered testimony on the specifics of the refund provision, and because we wish to reach a final resolution of this matter, we define here what we believe would be reasonable under the facts of this case, unless otherwise agreed to by the parties.

Specifically, for 10 years following completion of the 16-inch main to service WTA's development at Campbell Technology Park, the amount of WTA's potential refund would be $13,200 per parcel as the parcels existed at the time of the hearings. If a development includes several parcels, then the refund shall be $13,200 multiplied by the number of included parcels. We do not adopt WTA's alternative allocation proposal made for the first time in its brief. However, the parties may mutually agree on another reasonable allocation method, provided that the refund provision remain in effect for 10 years.

Findings of Fact

1. Complainant WTA is developing a light industrial park called Campbell Technology Park within SJWC's service territory.

2. The SJWC water system was inadequate to meet the fire flow requirements for WTA's project at Campbell Technology Park that are established by this Commission in GO 103 and by the Santa Clara Fire Department, which provides fire protection service to the area.

3. SJWC required WTA to advance the funds to install a new 16-inch water main to meet the proposed project's fire flow requirements. SJWC estimated the cost of the new main to be $686,600.

4. WTA advanced under protest a total of $1,091,200 (which includes the $686,600 required for the construction of the 16-inch water main), and entered into two agreements with SJWC in order to construct the water lines. Construction of the main in dispute is complete.

5. The 16-inch water main covers about 3,640 feet and passes about 52 separate properties between the point where it ties into SJWC's system and where it feeds the smaller pipes that serve Campbell Technology Park.

6. The properties surrounding Campbell Technology Park have not been intensely developed.

7. The 16-inch main is used by SJWC to provide domestic service to Campbell Technology Park, and it may also be providing domestic service to other customers.

8. Applying Rule 15's refund provisions to the facts of this case will encourage "in-fill" development of previously developed but underimproved parcels in urban and suburban areas, because the initial developer of an "in-fill" project will not need to fund the entire cost of infrastructure such as water mains, to serve the project, if, within a reasonable time, subsequent developers use this same infrastructure.

Conclusions of Law

1. Rule 15.D.1 of SJWC's tariffs provides for the opportunity for refunds for costs advanced for distribution mains designed to meet the fire flow requirements set forth in Section VIII of GO 103. Since the costs at issue in this case have been advanced for a distribution main designed to meet, among other things, the fire flow requirements of GO 103, these costs are refundable under Rule 15.

2. In interpreting tariffs, the tariff language must be construed as a whole, and should be given a fair and reasonable construction that avoids absurd results or would render some part of the tariff a nullity.

3. Because Rule 15.D.1 specifically refers to mains designed to meet fire flow requirements, the specific references in section D.1 should prevail over the more general references in Rule 15.A.1.b.

4. Providing WTA the opportunity for refund of a portion of the funds it has advanced for the 16-inch water main is also consistent with the outcome in Humber v. North Gualala Water Co., D.93-09-007, 50 CPUC2d 629.

5. Pursuant to Humber, the Commission required refunds under Rule 15 not only when the extension accomplishes a system upgrade that the utility would be required to make in any event, but also when the extension will within a reasonable time permit service to developers of subsequent projects.

6. To the extent that WTA requests that the main extension agreement between it and SJWC be revised to provide for refund in appropriate circumstances of amounts advanced by WTA for construction of the 16-inch main, the relief requested in the complaint should be granted.

7. To the extent not otherwise agreed to by the parties, the pro-rata amount of the refund should be determined as follows. The refund should be assessed on subsequent commercial users who, by use of the 16-inch main, obtain service that otherwise would not have been available absent the facilities contributed by WTA. The refund should be $13,200 per parcel as the parcels existed at the time of the hearings. If a development includes several parcels then the refund shall be $13,200 multiplied by the number of included parcels.

8. This decision should be made effective immediately so that the parties can promptly revise their main extension agreement.

ORDER

IT IS ORDERED that:

1. The complaint of WTA-Campbell Technology Park, LLC (WTA) against San Jose Water Company (SJWC) is granted insofar as it requests that refund provisions be included in the main extension agreement which SJWC prepared for service to WTA's property.

2. SJWC shall, within 30 days of the effective date of this decision, deliver a revised main extension agreement to WTA containing refund provisions substantially as follows: For a period of 10 years following completion of a 16-inch main to service WTA's Campbell Technology Park development, SJWC shall refund a pro-rata amount, reasonably determined, assessed on subsequent commercial users that obtain service through the 16-inch main that otherwise would not have been available absent the facilities contributed by WTA.

3. Subsequent refunds to WTA by SJWC, based on the refund provisions of the main extension agreement as revised pursuant to Ordering Paragraph 2, shall be determined as follows: unless otherwise mutually agreed to by SJWC and WTA, the pro-rata amount of the reasonably determined refund shall be $13,200 per parcel as the parcels existed at the time of the hearings. If a development includes several parcels, the refund shall be $13,200 multiplied by the number of included parcels.

4. Case 00-03-004 is closed.

This order is effective today.

Dated , at San Francisco, California.