MONTEREY PENINSULA WATER MANAGEMENT DISTRICT v. CALIFORNIA PUBLIC UTILITIES COMMISSION (CALIFORNIA AMERICAN WATER COMPANY)

Petitioner’s Petition for Writ of Review

Cal.February 25, 2013

aaws8 208838 @ IN THE SUPREME COURT OF THE STATE OF CALIFORNIA Monterey Peninsula Water ManagementDistrict, Petitioner, Vv. California Public Utilities Commission, Respondent, ss Seputy California-American Water Company, Real Party in Interest The California Public Utilities Commission, Decisions No. 1 1-03-035 and No.13-01-040 in Proceeding No. Application 10-01-012 The Honorable Maribeth A. Bushey, Administrative Law Judge Presiding Commissioner Michael R. Peevey, Assigned Commissioner PETITION FOR REVIEW David C. Laredo, Thomas J. MacBride,Jr., Bar No. 66532 Bar No. 066662 dave@laredolaw.net tmacbride@goodinmacbride.com DeLay & Laredo Suzy Hong, 606 Forest Avenue Bar No. 239489 Pacific Grove, CA 93950 Megan Somogyi, Bar No. 278659 Goodin, MacBride, Squeri, Day & Lamprey, LLP 505 SansomeStreet, Suite 900 San Francisco, California 94111 Telephone: (415) 392-7900 Facsimile: (415) 398-4321 Attorneys for Petitioner Monterey Peninsula Water ManagementDistrict CERTIFICATE OF INTERESTED ENTITIES Pursuant to California Rules of Court, Rules 8.208 and 8.496, Petitioner Monterey Peninsula Water ManagementDistrict herebystates that the following entities or persons have either (1) an ownershipinterest of 10% or morein theparty or parties filing this Certificate (CRC 8.208(e)(1)), or (2) a financial or other interest in the outcome ofthe proceeding that the Justices should consider in determining whether to disqualify themselves (CRC 8.208(e)(2)): | 1. Monterey Peninsula Water ManagementDistrict: A municipal water managementdistrict located in Monterey, California. 2. The California Public Utilities Commission: An independent administrative agency organized underArticle XII ofthe California Constitution responsible for overseeing and regulating public utilities in the State of California. 3. California-American Water Company:A privately-owned public utility that provides water service in Monterey, Placer, Ventura, Los Angeles, and San Diego Counties in California. Dated: February 22, 2013. GOODIN, MACBRIDE, SQUERI, DAY & LAMPREY, LLP Ce[ou“tt~ Attorneys fo ationeroHPeninsula Water ManagementDistrict If. IT. IV. TABLE OF CONTENTS Page ISSUE PRESENTED FOR REVIEW......cccccssssssessscsssessseesssesseetenses 1 GROUNDSFOR REVIEW.......ccccccsssssesesssesesscsessseeseesssssesssscsussnsasaes 2 STANDARD OF REVIEW. .......ccccsssssssssssssesesesscsesesessessesscsessesesseessnes 6 A. Petitions for Writ of Review Presenting Important Questions Of LAW...ceeecsestcesssesssseesetssseeseaseaeeeeseseeseeseess 6 B. Review of Acts in Excess of The Commission’s JUPISGICHION oeeee eeecceeecsecseesssesscessessssesessesseesesteatateaseeesseees 6 STATEMENT OF FACTS AND PROCEDURALHISTORY........ 8 ARGUMENT...ceecccesessseseseeeesssecsesessseseassssessssaacaecsesseaeecscenseases 15 A. Petitioner Possesses Express Legislative Authority to Levy Taxes and Fees and to Collect User Fees through Utility Bills Issued by Cal-Am uu... ccceeeseseessceeeeseeesceeesees 15 1. A Government Entity May Impose Taxes and Fees So Long as It Meets Applicable Constitutional and Statutory Requirements............... 15 2. Petitioner Is Vested With Express Authority to Adoptthe User Feeat Issue Herein and to Collect It Through a Utility Bill.eee16 B. The Commission Has No Jurisdiction OverPetitioner........ 17 C. Public Utilities Code Section 451 Does Not Vestthe Commission With Jurisdiction to Review and Reject Charges Imposed By GovernmentEntities and Collected Through a Utility Bill... ccessssseseeseeeeeeeeees 19 1. The Adventof “Section 451 Review”of Government Taxes and Fee........cccecccseseesesseseesseees 19 2. Commission Construction of Statutes Affecting its Own Jurisdiction is Not Entitled to Deference... eceeeesesseseesecesenscsresseeessecaeeaseresseateesees 20 3. The Commission ignores the plain language of Section 451 oo. ee eeeeseeseessseeceseeecssessesessecesssecsuseesneeseees 21 VIL VII. TABLE OF CONTENTS (continued) Page Section 451 Is Devoid of Any Reference to the COMMISSION.........c:cccesesseeseeessessereetnes 21 The “Charges” to Which Section 451 Makes Reference Are “Demandedor Received”By Petitioner, Not a Public UtHLItYeeeee ecccceseeseesccsecsscseceeessersesssssaeses 21 Section 451 Cannot Be Deemed An Express Authorization By the Legislature for the Commission to Exercise Authority Over Petitioner’s Fee... ccccesssssssesecsceseessscsscssssssessesvecens 23 The Commission’s construction of Section 451 conflicts with the relevant statutory scheme............. 24 The Rules of Statutory Construction Appropriate to This Dispute Require that the More-Specific Terms of the District Law Supersede the Broad Termsof Section 451 0.0.0.0... 25 a. The Legislature Was Presumed to Be Aware of Section 451 Whenit Enacted the District Law in 1977... eecceceecccccceeescecees 26 The More-Specific Provisions of District Law Take Precedenceover the Broad Rule in Section 451 ooccceceessscsssccsceeessseecees 26 Any Conflict Between District law and Section 451 must be Resolved in Favor of the Later- Enacted Statute .........cccciccecssecccsessssescceeceeesscsusceseerans 27 THE COMMISSION’S INTERPRETATION OF SECTION 451 IS ABSURD AND IMPERMISSIBLY EXPANDS THE COMMISSION’SJURISDICTION 1.0... eecccesescssssseeeeeesesssseseeceees 28 IN THE ALTERNATIVE, GRANTING REVIEW AND TRANSFERRING THE MATTER TO THE SIXTH DISTRICT COURT OF APPEAL IS AN APPROPRIATE WAY TO ADDRESS THE COMMISSION’S UNLAWFUL DECISION... ccccccssescssseseecessseseeaeseseesseseesesesesessesesesaesecsesasssecnseneas 30 -ii- TABLE OF CONTENTS (continued) Page VII. CONCLUSION ooceeseessecnsesesssesessessseessecsessseessesestescecsacesenes 32 - iii - TABLE OF AUTHORITIES Page Statutes 20 Cal. Code Regs. § 3.2 ec ciccccsssssssssessesesesesscsssscscsesesesesesseeasscscsassvacsusaes 29 20 Cal. Code Regs. § 1.3, subd. (€) on. .cccceesescsssccsssssecssescsstscescssesessvaceeeans 29 California Rule of Court, Rule 8.500, subd. (b) .....c..cccceccecsssceeeeeeeeeeerers 2 California Rule of Court, Rule 8.500, subd. (b)(1)......cccccccccesccsesseceeceeeeeeeees 2 California Rule of Court, Rule 8.500, subd. (b)(2).......cccccccccecsscsccseceseseeeees 2 California Rule of Court, Rule 8.500, subd. (b)(4).....0cccee5, 30, 31 Gov. Code § 53750 Cf Sq. ..ceecsssssssssssesssseescsescsecsenscsesssesesstscserscevstseesvaceaeans 10 Pub. Res. Code §§ 21000-21178 w...ccccccsccscsesscsscssesescsssscssssssstsssevsesessavereeees 9 Pub. Util. Code §§ 201-2113 icccccsscsssesscsscsscccssessscsscsscseessavsesaseeeeesas 24 Pub, Util. Code § 216 occcccsssssssssesesescsscsesseecsssscsesessssssssssseseessetaeers 22 Pub. Util. Code § 309.5, subd. () ...cccccccccscsssecsscsesscsssssscscssceusssssveceecsessceaves 3 Pub. Util. Code § 451 occccccscssesesssessessessesccsscsessessessssssessseseveasaespassim Pub. Util. Code § 454 oocccscssesessesscsseessessessesesecssesceusassusscsuseusevaessenes 12 Pub. Util. Code § 532 oo cccesesssssesesscsseesesescesecaesescsesesecsseseseceusussessseasees 23 Pub. Util. Code § 17011 occcecessessssesseesecssccscseessesssssseceesssssssvassessaeas 29 Pub. Util. Code § 1731 wc cccccccesccsssscesssssssssessessesscssesssssseessnessesaneeceecsaesaees 12 Pub. Util. Code § 1756, subd. (d) oo... ccceceeseccscsscsscsecscesseccecsersaceasenees 30, 31 Pub. Util. Code § 1756, subd. (f)....ccccseccccesessessessssescescesssesssecstecseees 30, 30 Pub.Util. Code § 1756, subd. (8)......cccecssccescsscssscssssssscscsscscsscesvseseesaseaeeas 30 Pub. Util. Code § 1757, subd. (a)(1)......cccccsecsecscssescessscscssvssssecsvessscaseecseses 6 Stats. 1911 (1st Ex. Sess.), ch. 14, § Liceccscessescsssssscsesssssseseseeseeees 24 Stats. 1915, Ch. 91, § Lieesssseessesesseessesseseesscssesscsssecsssscssscsscsessesaceneeaes 24 Stats. 1915, Ch. 91, § 13eeeccessescsecssssecssscseecseeesscsesssssscesssscesesvssseseeeess 24 Stats 1977, ch. 527, § 2, Deering’s Water-Uncod. Acts (2008 Supp.) ACt 5065, Pp. 98-99 ooee ccccesessssssssssecescseesesseecsssecsuceesscsussusesserensvaseagenevees 8 Stats. 1998, ch. 886 (SB 960), § 1.5, subd. (a) oo... ccc cecccceccceccssseseeeerseeees 30 Cases California Manufacturers Ass’n. v. Public Utilities Com. (1979) 24 Cal.3d 836oceccccsssenessesetsessesesceecsesscsccsesscsesscsesssscsecsusssessevaesaceaees 28 Carlsbad Municipal Water Dist. v. QLC Corp. (1992) 2 Cal.App.4th 479 ooo cccccscssssssssessecsssscsessscssssssesessescsssssssssssressseseseees 15 City ofModesto v. Modesto Irr. Dist. (1973) 34 Cal.App.3d 504.0... 15 City ofPasadena v. AT&T Communications ofCalifornia, Inc. (2002) 103 Cal.App.4th 981 occessssessssssscsecscsessessssscscsscscsssnssccscsevsceseverseeeas 21 City ofSan Jose v. Donohue (1975) 51 Cal.App.3d 40... ccccesceteeseeeeeee 15 County ofInyo v. Public Utilities Com. (1980) 26 Cal.3d 154occeececessesssssesssececssessesssessecensssssssteceetenseens 17, 18, 23, 24 -iv- TABLE OF AUTHORITIES (continued) Page Eastern Mun. Water Dist. v. City ofMoreno Valley (1994) 31 Cab.App.4th 24 ooo ccccccscssssecsessssecsseseeseesecsessssucsssssssascscssevsesaasereeees 15 Garcia v. McCutchen (1997) 16 Cal.4th 469 oo... ccccccccesesseseressestsessenes 21 Hassan v. Mercy American River Hospital (2003) 31 Cal.4th 709............. 22 Keller v. Chowchilla Water Dist. (2009) 80 Cal.App.4th 1006, ......cc.. 15 Los Angeles Met. Transit Authority v. Public Utilities Com. (1959) 52 Cal.2d 655 ooo ieseecseseesetsescsecesesecsseseessseesesesecsessssucessasussuseceaesaeenateas 18 Los Angeles Metropolitan Transit Authority v. Public Utilities Com. (1963) 59 Cal.2d 863, 866 oo... ccesssssscesesetscsscecscsssscsssssssesssesscscaeeatareeas 23 McCarther v. Pacific Telesis Group (2010) 48 Cal.4th 104 wo...24, 28 Pacific Bell Wireless, LLC v. Public Utilities Com. (2006) 140 Cal.App.4th 718occcssssssssscssesscssssssessseecsseecssssseasssesssssssceseasareas 20 Palandv. Brooktrails Township Community Services District Bd. of Directors (2009) 179 Cal.App.4th 1358 ....c.cccssscsececscsseetssscsssssssssssecees 15 People ex rel. Public Utilities Commission v. City ofFresno (1967) 254 Cal.App.2d 76 oo... ecceccscssccecssssesssssessesecsscseesssssssessssausasseuseseessnserees 26 PG&E Corp. v. Public Utilities Com. (2004) 118 Cal.App.4th 1174.00... 20 Prospect Medical Group Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497 ooo cccccssssssecsessesssscsseeesesecseesescssecscsecscacseveceeeas 24 San Leandro Teachers Ass’n v. Governing Bd. ofSan Leandro Unified School Dist. (2009) 46 Cal.4th 822 oo. .ccsscsssssesscsscscscsesecsessssssssseseeesees 24 Santa Clara Valley Transportation Authority v. Public Utilities Com. (2004) 124 CalApp.4th 346 oo. cccccccssssscssssscsssssssessssssseseecseeveeeaespassim Decisions of the California Public Utilities Commission Baird v. California-American Water Company (March 9, 1994) 53 C.P.U.C.2d 324,1994 Cal. PUC LEXIS 186 ooo. ccccccccceceessceeeessseeees 10 Decision No. 09-07-02 1... ceccccccscssccessssscccsssscscecsssecscecearecetaseseaevensaes 10, 11 Decision No. 12-06-0200... .cccecccsccssccssccssevsssscessesessesseecscectusceessseaeessteeasens 13 Decision No. 13-01-0400...cc cccccssccssscecssevssecsssecssseseareesaesesesuesesseseseceeeens 2 Investigation on the Commission’s Own Motion to Establish Guidelines Sor the Equitable Treatment ofRevenue-Producing Mechanisms Imposed by Local Government Entities on Public Utilities (May 26, 1989) Decision No.89-05-063, 1989 Cal. PUC LEXIS 890 woe12 Order Instituting Investigation on the Commission’s Own Motion into the Rates, Operations, Practices, Services and Facilities ofSouthern California Edison Company, etc. (October 25, 2012) Investigation No. 12-10-013, 2012 Cal. PUC LEXIS 483 wo... ccceccssscscesssessseseeeteeees 17 TABLE OF AUTHORITIES (continued) Page Order Instituting Rulemaking to continue Implementation and Administration ofCalifornia Renewables Portfolio Standard Program (May5, 2011) D.12-05-035, 2012 Cal. PUC LEXIS233 ....... 17 Other Authorities Lakusta, Operations in an Agency Not Subject to the APA: Public Utilities Commission (1956) 44 Cal. L. Rev. 218 w..cccccccsccsscsecssesessssseseeees 24 -vi- L ISSUE PRESENTED FOR REVIEW Maythe well-established statutory authority ofcities, counties, municipal utility districts, and other governmententities to levy and collect taxes and fees be restricted by the California Public Utilities Commission (“Commission”), despite the Commission’s lack ofjurisdiction over governmententities or their properly-imposed fees? II. GROUNDS FOR REVIEW Pursuantto California Rule of Court, Rule 8.500, subdivision (b), this case presents the following groundsfor review: This case requires the court to settle an important question of law. (CRC 8.500, subd. (b)(1).) This case further warrants review because the Commission exceededits jurisdiction in issuing Decision No.1 1-03-035 and Decision No. 13-01-040. (CRC 8.500, subd. (b)(2).) This case presents an important issue of law for any public entity upon which the Legislature has conferred the authority to levy taxes or fees' and collect those taxes or fees through public utility bills. The question is whether Section 451 of the Public Utilities Code (“Section 451°) authorizes the Commission to (1) pass judgmenton the reasonablenessof a tax or fee lawfully promulgated by a governmententity over which the Commissionhasno jurisdiction and (2) prohibit or restrict the governmententity’s collection of such tax or fee through utility bill. Monterey Peninsula Water ManagementDistrict (‘‘Petitioner” or “District”), is a governmentalentity that the Commission concedesis not subject to Commission jurisdiction. Petitioner was established by the Legislature thirty-five years ago for the purpose of managing scarce and environmentally sensitive water resources in the Monterey Peninsula area. The Legislature vested Petitioner with the traditional powers available to governmententities to fulfill their statutory purposes. In the case of Petitioner, these include the power to impose fees to fund Petitioner’s services and facilities and to contract with a “private or public utility” to collect the fee on utility bills. ' There is no legalor factual distinction between taxes and fees under the contested issue of law raised in this matter. Thirty years ago, pursuantto this authority, Petitioner adopted an ordinance” imposing a userfee within its boundaries and engaged California-American Water Company (“Cal-Am”), a public utility subject to Commission jurisdiction, to collect the user fee on behalf of Petitioner. Cal-Am collected the fee and remitted it to Petitioner without incident until the instant matter arose. In 2010,at the direction of the Commission, Cal-Am filed an Application with the Commission requesting authority to continue collecting the user fee on behalf of Petitioner. All parties to the ensuing proceeding,including the Commission’s Division of Ratepayer Advocates,’ urged the Commission to permit Cal-Am to continue to collect the fee on behalf of Petitioner, as it had for decades. The Commission refused to do so. Ignoring the century-old limitation on its jurisdiction to “private persons or corporations,” the Commissionrelied on a single sentence in a statute devoid of any reference to the Commission, to declare that it possessed jurisdiction over any “charge,” including a tax or fee promulgated by a government entity, appearing on a utility bill. The Commissionstated that any such charge “regardless of the originator” was subject to “Section 451 Review”by the Commission.* The Commission has neverheretofore scrutinized a government tax or fee collected througha utility bill. In the past, the Commission accepted the authority of a governmental entity to impose or levy any form of tax or ? Ordinance No. 10 (July 26, 1983) (availableat http://www.mpwmd.dst.ca.us/ordinances/final/pdf/Ordinance%20010.pdf, last visited February 21, 2013). > The Division of Ratepayer Advocatesis a statutorily created division of the Commission staff charged by law with representing “the interests of public utility customers and subscribers within the jurisdiction of the commission.” (Pub. Util. Code § 309.5, subd.(a).) * See pp. 19-20, infra. fee upon utility customers. The Commissionhasonly directed that the fee or tax be included as a separate item or items on bills, and that the bills be rendered only to customersresiding within the boundaries ofthe governmententity imposingthetaxorfee. Here, however, the Commission required Cal-Am to discontinue collecting the fee for Petitioner, effectively proscribing Petitioner from collecting its user fee through the lawful and statutorily-authorized means of a charge on Cal-Am’s bills to customers within the District. The Commission thereby unlawfully asserted jurisdiction over Petitioner. The Commission’s newly-asserted jurisdiction over a fee imposed by Petitioner will affect other governmententities that are authorized to levy taxes and fees, and collect those taxes and fees throughthe bills of public utilities. Cities, for example, are empoweredto, and do,levyutility users taxes that are collected throughutility bills.> Under the Commission’s newly-heralded expansion ofits own jurisdiction, the Commission may subject any tax or fee to Commission review,“Section 451 Review,” examining the purpose,structure and levelofthe tax orfee,° and restrict or prohibit its collection simply becausethetax orfee is collected ministerially, as it has been for decades,through a publicutility bill. The Commission’s construction of its own jurisdiction exceeds that conferred uponit by the Legislature and is wholly at odds with long- standing precedent holding that the Commission does not have poweror - authority over public entities except where such authority is expressly conferred by the Legislature. ° See, e. g., the Communications Users Tax imposedonresidents of the City of Los Angeles. The 9% tax is authorized by the Utility Users Tax ordinance, and collected through telephonebills. (Information available at http://finance.lacity.org/content/cutfaq.htm,last visited February 21, 2013.) ® See fn. 18, infra. Because the Commission lacked jurisdiction, Decision No.11-03- 035 and Decision No. 13-01-040 are unlawful, and this case warrants review. Alternatively, review is appropriate for the purpose oftransferring the matter to the Sixth District Court of Appeal for such proceedingsas the Supreme Court may order. (CRC 8.500, subd. (b)(4).) Il. STANDARD OF REVIEW A. Petitions for Writ of Review Presenting Important Questions of Law Pursuant to Public Utilities Code section 1756, subdivision(f), the Supreme Court is vested with the exclusive jurisdiction to review Commission decisions pertaining to water corporations, except in a complaint or enforcement proceeding. The Commission decisions of which review is sought here pertain to Cal-Am,a water corporation. Accordingly, Petitioner seeks review underthis court’s original jurisdiction. This case presents an important question of law for any government entity upon which the Legislature has conferred the authority to (1) levy taxes or fees and (2) collect those taxes or fees through utility bills. The question is whether the Commission may pass judgmenton the reasonableness ofthe level or purpose of a lawfully-imposed government tax or fee, and, if dissatisfied, prohibit or restrict collection of such tax or fee through thestatutorily-authorized meansof a charge on utility bill. Theinstant petition shows the Commissionerred in finding Section 451 vests it with the powerto undertake such review. The Commission’s granular examination ofPetitioner’s fee and proscription of its collection through Cal-Am’s utility bills exceeds the powers and jurisdiction conferred upon the Commission bythe Legislature. B. Review of Acts in Excess of The Commission’s Jurisdiction The scope of the Court’s review of Commission decisionsis set out in Public Utilities Code section 1757, which allows the Court to determine, among other things, whether “the commission acted without, or in excess of, its powersor jurisdiction.” (Pub. Util. Code § 1757, subd.(a)(1).) In this case, the Commission has acted well in excess of its powers and jurisdiction by (1) subjecting to “Section 451 Review”the lawfully imposeduserfee of Petitioner, a government agency not subject to Commissionjurisdiction, and (2) prohibiting Petitioner from collecting the user fee through Cal-Am’s utility bills to customers, as authorized by the Legislature. IV. STATEMENT OF FACTS AND PROCEDURAL HISTORY Residents and businesses in the Monterey Peninsula have been struggling with water constraints since the 1940s. This shortage has been due to frequent drought conditions on the semi-arid peninsula, which obtains its water supply solely from rainfall. (Appendix (“App”)-I 166.) Cal-Am, the principal retail water provider on the Monterey Peninsula, supplies its Monterey District with surface water and groundwater from the Carmel River System and the coastal subarea of the Seaside Groundwater Basin. (App-I 166.) The Legislature created Petitioner in 1977 for the purposes of “conserving and augmenting the supplies of water by integrated managementof ground and surface water supplies, for control and conservation of storm and wastewater, and for the promotion ofthe reuse and reclamation of water.” (Stats 1977, ch. 527, § 2, Deering’s Water- Uncod. Acts (2008 Supp.) Act 5065, p. 98-99 (“District Law”).) Petitioner is a governmental body with the authority to levy fees and taxes for services, facilities, and water furnished, and is authorized to “exercise the powers whichare expressly granted by [the District Law], together with such powers asare reasonably implied from such express powers and necessary and proper to carry out the objects and purposesofthe district.” (id. at §§ 133, 301, 326.) Petitioner is governed by a seven-member Board ofDirectors (“Board”). Five Directors are elected by voter divisions within the District; one Director is a memberofthe Monterey County Board of Supervisors and is appointed by the Board of Supervisors; and oneDirectoris a mayor, memberofthe governing body,or chief executive officer of a city that is wholly within the District boundary, and is appointed by the City Selection Committee of Monterey County. (App-II 286.) In 1981, Petitioner enacted the Monterey Peninsula’s first standby waterrationing plan, limiting Cal-Am’s appropriations from the Carmel River. (App-I 10.) In 1990, to address the environmental consequencesof Cal-Am’s water production from the Carmel River and the Seaside GroundwaterBasin, and as requiredby statute, Petitioner adopted mitigation measures referred to herein as Petitioner’s Mitigation Program. (Pub. Res. Code §§ 21000-21178; App-I 10.) Prior to the adoptionof the Mitigation Program,Petitioner had (1) enacted Ordinance No.10, a user fee ordinanceto provide funding for Petitioner’s exercise of its responsibilities under District Law, and (2) collected that user fee through Cal-Am. Petitioner began collecting the user fee through Cal-Am in 1983. (App-II 289.) Revenues from the user fee supported the Mitigation Program, conservation efforts, and water supply projects.’ (Id. at p. 290.) The authorizing ordinance provides that the user fee is a percentage of each wateruser’s total bill from either Cal-Am or the Seaside Municipal Water System.® The userfeeis currently set at 8.325% of all monthly and volume based water charges. (/d. at p. 289.) The Board of Directors revisits the fee annually during the District’s budget review process and examines whetherthefeeis still required and whether the amountis still appropriate. (/d. at p. 340.) The Commission has long recognized the propriety of Cal-Am’s collection of Petitioner’s user fee. (See, e.g., Baird v. California-American Water Company (March 9, 1994) 53 C.P.U.C.2d 324, 326, 1994 Cal. PUC ” Oneprincipal water supply project is known as the Aquifer Storage and Recovery project (“ASR”). The ASRproject, in very simple terms, seeks to divert seasonally excess winter flows from the Carmel River Basin to artificially recharge the Seaside Basin to increase the availability of water in low flow seasons. (App-II 258.) 8 Seaside Municipal Water System, which is not subject to the jurisdiction of the Commission, continuesto collect the user fee on behalf of Petitioner. LEXIS 186 [recognizing propriety of Cal-Am’s assessmentoffee set at level fixed by Petitioner and deferring to Petitioner on any question regarding application of fee to vacantlots].) In 1996, California voters approved Proposition 218, which added Articles XIII C and XIII D to the California Constitution. Proposition 218 requires a majority vote of affected property owners before a new or increased assessment can be levied. (App-II 339.) The changes made under Proposition 218 were implemented by the Proposition 218 Omnibus Implementation Act. (Gov. Code § 53750 et seq.) Following implementation of these changes,Petitioner conducted notice and majority protest proceedings for the portion of the user fee allocated to the ASR program. (App-II 339-340.) In July 2009, the Commission issued Decision No. 09-07-021 (“D.09-07-021”) in response to an application by Cal-Am to increaseits rates for water service in its Monterey District. D.09-07-021 did not authorize Cal-Am to continue to collect the user fee on Petitioner’s behalf. Instead, the Commission “directed the parties to provide evidence to support the proposed User Fee” in a subsequent docket. (Decision No.13- 01-040, at p. 3 [attached hereto as Exhibit 2].) Ordering Paragraph No. 25 of D.09-07-021 directed Cal-Am to develop and submit for Commission approvala program to fundthe projects then currently performed by Petitioner that were properly the responsibility of Cal-Am, and authorized Cal-Am tofile an advice letter creating a memorandum accountin which to record its costs of such funding. (App-I 165.) In response, Cal-Am (1) created the Monterey Peninsula Water ManagementDistrict User Fee Memorandum Account (“Memorandum Account”) and (2) continued to make paymentsto Petitioner to fund the Mitigation Program and the ASR,so these two projects would continue to receive funding; the payments were recorded in the Memorandum Account. -10- (App-I 165.) On January 5, 2013, in compliance with D.09-07-021, Cal- Am filed Application No.10-01-012 (“A.10-01-012”) seeking an order authorizing Cal-Amto continue collecting the user fee and remittingit to Petitioner. The Commission’s Division of Ratepayer Advocates (“DRA”), a filed a protest on January 18, 2010, objecting to issuesraised by the Application not relevant here, but supporting the Application in all other respects. During the pendency of A.10-01-012, DRA, Cal-Am andPetitioner, the only parties to the proceeding at that time,” reached agreementwith regard to the user fee. They executed a settlement (“All-Party Settlement”) stipulating that: (1) Petitioner’s Mitigation Program is non-duplicative, reasonable, and prudent; (2) Petitioner’s ASR is non-duplicative, reasonable, and prudent; and (3) Cal-Am should be authorizedto collect Petitioner’s user fee at a rate set by Petitioner and remit the sumscollected to Petitioner. (App-I 167-168.) On May18, 2010, DRA, Cal-Am andPetitioner filed a motion asking the Commission to approve the All-Party Settlement. On December21, 2010, an Administrative Law Judge (“ALJ”) at the Commission issued a Proposed Decision (“PD”) denying the motion, denying the Application, and closing the proceeding, which the Commission directed Cal-Amto initiate in the first place. DRA, Cal-Am and Petitioner submitted comments on the PD. In their comments,all parties stated the PD erred because the PD, if adopted by the Commission, would impermissibly exercise jurisdiction over the user fee and directly contravene Commission precedent and Commission guidelines for equitable treatment of revenue-producing mechanisms imposed by ” The Sierra Club wasaccorded party status in late 2011. -ll- governmententities on publicutilities.'° (App-I 108-109, 128-129, 143- 144.) On March 25, 2011, the Commission issued Decision No.11-03-035 (“D.11-03-035”[attached hereto as Exhibit 1]). Notwithstanding the unanimousopinionofthe affected parties that the PD impermissibly exercised jurisdiction overthe user fee, the Commission, relying on Pub. Util. Code § 451 and 454,'' governingrates charged bya publicutility, found the All-Party Settlement “does not demonstrate that the... District’s user fee meets the Commission’s standards.” (D.11-03-035, at p. 14.) The decision instructed Cal-Am to file an amendedapplication and directedit to close the Memorandum Accountwithin 60 days. (dd. at pp. 17-18.) On April 25, 2011, Petitioner filed an application for rehearing of D.11-03-035 pursuant to Public Utilities Code section 1731. The rehearing application alleged numerousjurisdictional and procedural defects in D.11- 03-035, including the Commission’s lack ofjurisdiction over Petitioner and its userfee. On August 26, 2011, as directed by D.11-03-035, Cal-Am filed an Amended Application, proposing a joint program with Petitioner to perform the Mitigation Program and the ASR project. (App-I 216.) Petitioner protested the Amended Application on the grounds the Commission '° Investigation on the Commission’s Own Motion to Establish Guidelines for the Equitable Treatment ofRevenue-Producing Mechanisms Imposed by Local Government Entities on Public Utilities (May 26, 1989) Decision No.89-05-063, 1989 Cal. PUC LEXIS890,at p. *36 (“This Commission does not dispute or seek to dispute the authority or right of any local governmental entity to impose or levy any form oftax or fee uponutility customersortheutility itself, which that local entity, as a matter of general law orjudicial decision, has jurisdiction to impose, levy, or increase. Any issue relating to suchlocal authority is a matter for the Superior Court, not this Commission.”). " Ultimately, in Decision No.13-01-035 (“Rehearing Decision”), the Commission abandonedits reliance on Section 454. -12- impermissibly exercised jurisdiction over the user fee. (App-I 246.) DRA filed a general protest to the amended application. (/d. at pp. 249-251.) On June 26, 2012, the Commission issued Decision No. 12-06-020 authorizing Cal-Am to enter into an agreementwith Petitioner to fund Carmel River mitigation measures. Pursuant to Decision No. 12-06-020, District activities found reasonable by the Commission would be funded by a Cal-Am surcharge on its customer’s bills. (App-III 577-579.) The net effect of the decision was to partially replace the user fee revenues denied Petitioner by D.11-03-035 with revenues from Cal-Am squarely under the control of the Commission. The changein the source of funding left the Commission,rather than Petitioner’s Board, with the authority to make judgments regarding whetherthe need and costs for Petitioner’s mitigation projects in Monterey County warranted funding by water users in Monterey County. On October 14, 2011, while the Amended Application was before the Commission, Petitioner filed a Petition for Modification of D.11-03-035 in order to provide the Commission with a procedural vehicle for revisiting its rejection of the user fee while Petitioner’s rehearing application was pending. ThePetition for Modification sought to amend D.11-03-035 by modifying it to find the All-Party Settlement was reasonable. (App-II 253- 255.) The Commission has never taken any action with respect to the Petition for Modification; the Rehearing Decision, however, affirmed the Commission’s initial ruling that the All-Party Settlement was not reasonable and should not be adopted. (Rehearing Decision,at pp. 23-24.) On January 25, 2013, the Commission issued Decision No.13-01- 040 (“Rehearing Decision”), denying Petitioner’s application for rehearing of D.11-03-035. The Rehearing Decision denied that the Commission either asserted jurisdiction overPetitioner or “negate[d] any lawful authority [Petitioner] may have to impose a User Fee that would be -13- collected by Cal-Am from theutility’s customers.” (Rehearing Decision,at p. 5.) Stating thatit “has consistently held that it will not pass judgment on the authority of any local entity to impose taxes, fees or charges onutilities or their customers”and “recognize[s] that local taxing authority is properly the domain of the Superior Court,” the Commission “presumed the District’s authority [to levy taxes and fees] is sound.” (/bid.) After those acknowledgements, however, the Commission framed the issue now before this Court: That said, it is within our jurisdiction to protect the public interest in matters pertaining to utility regulation. That jurisdiction includes exclusive authority over public utility rates and cost recovery, and the duty to ensure thoserates and costs are just, reasonable, and nondiscriminatory. Because Cal-Am would be recovering the proposed [District] User Feefrom its customers, it was within the Commission’sjurisdiction and responsibility to review the proposed User Fee costs. (T)he “charge,” regardless ofthe originator, was properly subject to the Section 451 review. (Rehearing Decision,at pp. 5, 20 [italics added].) Petitioner believes the emphasized statements of law are incorrect and nowseeksreview in this court. -14- V. ARGUMENT A. Petitioner Possesses Express Legislative Authority to Levy Taxes and Fees and to Collect User Fees through Utility Bills Issued by Cal-Am. 1. A GovernmentEntity May Impose Taxes and Fees So Long as It Meets Applicable Constitutional and Statutory Requirements Governmententities have a well-established right to levy and collect taxes and fees so long as they comply with the applicable constitutional and statutory requirements for imposition of those taxes andfees. (See,e.g., Paland v. Brooktrails Township Community Services District Bd. of Directors (2009) 179 Cal.App.4th 1358, 1362, 1365-1366 [holding that the Community Services District properly imposed monthly water and sewer baserates fees]; Keller v. Chowchilla Water Dist. (2009) 80 Cal.App.4th 1006, 1008 [holding that the Water District properly imposed a standby charge for the purchase of water]; Carlsbad Municipal Water Dist. v. OLC Corp. (1992) 2 Cal.App.4th 479, 491 [holding that the Water District properly imposed a developmentfee].) The Commission does not dispute this authority. |? The powerto imposea tax or fee includes the powerto collectit. (See Eastern Mun. Water Dist. v. City ofMoreno Valley (1994) 31 Cal.App.4th 24, 30 [“[A] charter city has the implied authority to require collection ofa utility user’s tax by the providerofthe service.”]; City of San Jose v. Donohue (1975) 51 Cal.App.3d 40, 47 [stating the powerto tax carries with it the powerto effect collection]; City ofModesto v. Modesto Irr, Dist. (1973) 34 Cal.App.3d 504, 508 [“It is basic that the powerto tax 2 See fn. 10, supra, see also Rehearing Decision,at p. 5, and fn. 18 [“This Commission hasconsistently held that it will not pass judgment on the authority of any local entity to impose taxes, fees or charges onutilities or their customers.”]. -15- carries with it the corollary powerto use reasonable meansto effectits collection; otherwise, the power to impose a tax is meaningless.”].) 2. Petitioner Is Vested With Express Authority to Adopt the UserFee at Issue Herein and to Collect It Through a Utility Bill The Legislature created Petitioner in 1977, declaringthat: [W]ithin the Monterey Peninsula area, there is need for conserving and augmenting the supplies of water by integrated managementof ground and surface water supplies, for control and conservation of storm and wastewater, and for promotion ofthe reuse and reclamation of water...... (District Law, supra, § 2.) District Law vests Petitioner with express authority to levy taxes and fees andto collect user fees throughutility bills issued by Cal-Am. As relevant here, Petitioner is expressly authorized to: (1) “levy and collect taxes and assessments upon land and improvements to land within the district for the purposes of carrying on the operations and paying the obligations ofthe district” (District Law, supra, § 306; see alsoid. at §§ 501 and 701); (2) “fix, revise, and collect rates and chargesforthe services, facilities, or water furnishedbyit” (id. at § 326, subd. (b)); and (3) “provide that charges for any of its servicesor facilities may be collected together with, and not separately from, the charges for other servicesorfacilities rendered by it, or it may contract that all such charges be collected by any other private or public utility, and that such charges be billed upon the samebill and collected as one item.” (Id. at § 326, subd. (d)[italics added].) The Legislature further vested Petitioner with authority to -16- “exercise the powers which are expressly granted by [District Law], together with such powersas are reasonably implied from such express powers and necessary and properto carry out the objects and purposes of the district.” (/d. at § 301; see also id. at § 133.) The Commission acknowledged the express, broad authority conferred uponPetitioner by the Legislature, stating: This Commission hasconsistently held thatit will not pass judgmenton the authority of any local entity to impose taxes, fees or charges on utilities or their customers. We recognizethat local taxing authority is properly the domain of the Superior Court. Thus, for purposes of D.11- 03-035, we presumed the District’s authority is sound. (Rehearing Decision, at p. 5 [footnotes omitted; italics added].) Petitioner exercised its undisputed authority to assess the userfee at issue here when it enacted Ordinance No.10. B. The Commission Has No Jurisdiction Over Petitioner Petitioneris not a public utility governed by the Commission. The Commission has long acknowledgedthatit is not vested with jurisdiction over government entities such as Petitioner. (See, e.g., Order Instituting Investigation on the Commission’s Own Motion into the Rates, Operations, Practices, Services and Facilities ofSouthern California Edison Company, etc. (October 25, 2012) Investigation No. 12-10-013, 2012 Cal. PUC LEXIS 483, at p. *3, fn. 1 [“The City of Riverside is a municipalutility not under [Commission] jurisdiction.”]; Order Instituting Rulemaking to continue Implementation and Administration ofCalifornia Renewables Portfolio Standard Program (May 5, 2011) D.12-05-035, 2012 Cal. PUC LEXIS 233, at p. * 143 [holding the Commission has nojurisdiction over the tariffs of publicly-ownedutilities].) This Court so held in County of -17- Inyo v. Public Utilities Commission, which affirmed the Commission’s dismissal of a complaint before it against the Los Angeles Department of Water and Power (“LADWP”). (County ofInyo v. Public Utilities Com. (1980) 26 Cal.3d 154, 1966 (“Jnyo”).) “The commission has nojurisdiction over municipally ownedutilities unless expressly provided by statute” (Id. at p. 166 [internal quotation marks omitted].) Since the Legislature had enacted nostatute pertaining to municipalutilities such as LADWP,“it is plain .. . the Legislature has not granted the PUCjurisdiction overrates charged by municipally owned utilities to municipalresidents.” (Jd. at pp. 166-167.) Similarly, the Legislature has not given the Commission statutory authority over Petitioner; the Commission therefore has no jurisdiction overPetitioner’s user fee. As this “Court has recognized, ‘[e]stablished doctrine declares that, [i]n the absenceoflegislation otherwise providing, the [PUC’s] jurisdiction to regulate public utilities extends only to the regulation of privately ownedutilities.” (Santa Clara Valley Transportation Authority v. Public Utilities Com. (2004) 124 Cal.App.4th 346, 356 (“Santa Clara’’) [quoting Los Angeles Met. Transit Authority v. Public Utilities Com. (1959) 52 Cal.2d 655, 661 (internal quotation marks omitted)].) The Commission disclaimsanyassertion ofjurisdiction over Petitioner. Instead, the Commission asserts that because Petitioner’s user fee appears on a public utility bill, the user fee, and presumably any other tax or fee appearing onthebill “regardless ofthe originator,” is subject to review by the Commission to determine whetherthe userfee is “just and reasonable.” The Commissionrefers to this scrutiny as “Section 451 review.” (Rehearing Decision, at p. 20.). Section 451, however, provides the Commission no such authority. -18- Cc. Public Utilities Code Section 451 Does Not Vest the Commission With Jurisdiction to Review and Reject Charges Imposed By GovernmentEntities and Collected Through a Utility Bill 1. The Adventof “Section 451 Review” of Government Taxes and Fees Despite the undisputed fact the Commission has nojurisdiction over Petitioner or the user fees Petitioner lawfully adopted, the Commission nevertheless purports to have jurisdiction to review the user fee if Petitioner collects it, as permitted by law, through Cal-Am. The Commission’s rationale is simply stated: because “Cal-Am would be recovering the proposed User Fee from its customers, it was within the Commission’s jurisdiction and responsibility to review the proposed UserFeecosts.” (Rehearing Decision,at p. 5.) Public Utilities Code Section 451" (“Section 451”) serves as the sole justification for this claim.’ The Rehearing Decision states that “[w]hat the District ignores is that the fee is still a charge that would bebilled and recovered from Cal- Am customer[sic]. As such, the ‘charge,’ regardless of the originator, was properly subject to the Section 451 review.” (Rehearing Decision,at p. 20.) ° Section 451 provides, as relevanthere: All charges demandedor received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demandedorreceived for such product or commodity or service is unlawful. '* D.11-03-035 madereferenceto section 454 which plainly applies only to “public utilities” and, in the Rehearing Decision, the Commission abandonedanyreliance on Section 454. -19- The Commission offers no authority or analysis to support its construction of Section 451 and noneexists. Its broad view ofthe reach of the statute makes nodistinction between taxes, fees or any other type of charge “regardless ofthe originator.” The Commission’s interpretation transforms Section 451 from a broadly-stated standard governing the rates of public utilities into a rare exception to the fundamentallegalprinciple that the Commission’s jurisdiction extends only to private public utilities, not to government bodies. The Rehearing Decision announcesthat if a governmentbodyseeksto collect a tax or fee through a utility bill, the predicate to doing so is to submit the tax or fee to “Section 451 review’— a phrase that does not appear in any previous decision of the Commission. Assuming the Commission had jurisdiction over public entities, whichit does not, Section 451 Review of government taxes and fees cannot survive application of the customary rulesof statutory construction. 2. Commission Construction of Statutes Affectingits Own Jurisdiction is Not Entitled to Deference At the outset, the Commission’s construction ofstatutes delimiting its own jurisdiction is not entitled to the level of deference required with regard to the Commission’s construction of otherstatutes. (Pacific Bell Wireless, LLC v. Public Utilities Com. (2006) 140 Cal.App.4th 718, 729 (“PacBell Wireless”); Santa Clara, supra, 124 Cal.App.4th at p. 359; PG&E Corp. v. Public Utilities Com. (2004) 118 Cal.App.4th 1174, 1194.) In addition, even were the Court to find the statute to be of a class where deference was appropriate, deference to the Commission’s construction may not be afforded where Commission’s interpretation of a particular statute “fails to bear a reasonablerelation to statutory purposes and language.” (PacBell Wireless, supra, 140 Cal.App.4th at p. 736.) Here, the Commission’s construction of Section 451 bears norelationship to the statute’s purpose, whichis to ensurethat the rates of public utilities - 20 - are “just and reasonable,” or the language of the statute, which is devoid of any reference to the Commission. 3. The Commission ignores the plain language of Section 451 Wheninterpreting statutes, courts first look to the plain language of the statute and give the wordstheir ordinary, everyday meaning. If the meaning is unambiguous,the plain language controls. (Garcia v. McCutchen (1997) 16 Cal.4th 469, 476.) Courts have further held that “[w]hen the words are unambiguous, we presumethe lawmakers meant whatthey said.... The courts may not, under the guise of statutory construction, rewrite the law or give the words an effect different from the plain and direct import of the terms used.” (City ofPasadena v. AT&T Communications ofCalifornia, Inc. (2002) 103 Cal.App.4th 981, 984 [italics added; internal citations and quotation marks omitted]; Code Civ. Proc. § 1858.). The Commission’s interpretation of Section 451 is inconsistent with the plain languageofthe statute. a. Section 451 Is Devoid of Any Referenceto the Commission Atthe outset, Section 451 makes no reference to the Commission. Theplain language ofthestatute sets a broad standard requiring that the rates of public utilities be “just and reasonable.” No languagein the statute authorizes the Commission to review taxes or fees of governmententities such as Petitioner. (Pub. Util. Code § 451.) b. The “Charges” to Which Section 451 Makes Reference Are “Demandedor Received” By Petitioner, Not a Public Utility Section 451 applies the “just and reasonable”standard to “all charges demandedor received by any public utility .’ (Pub. Util. Code § 451 [italics added].) The plain language of Section 451 displays the -2]- Legislature’s intentthat the “just and reasonable” standard apply to charges demandedor received by a public utility foritself. In this case, the user fee is not demandedorreceived by Cal-Am,a public utility, for its own account; it is demandedandreceived by Petitioner, the government body that imposed the fee by ordinance. Cal-Am collects the user fee as a purely ministerial function throughits utility bills, as authorized pursuant to District Law. (District Law, supra, at § 326 [user fee may becollected by any other private or public utility, and... such charges be billed upon the samebill and collected as one item][italics added].) Even wherethe statute makes reference to a second entity “demanding or receiving”charges, the second entity must be a “public utility.” (Pub. Util. Code § 451.) Petitioner is not a “public utility” as the term is used in the Public Utilities Code. (See Pub. Util. Code § 216.) Finally, reference to the final sentence of Section 451 affirmsthat the “charges” subject to the “just and reasonable”test in the first sentence are those of the public utility. Section 451 concludes by requiring: “All rules madeby a public utility affecting or pertaining to its charges or service to the public shall be just and reasonable.” (Italics added.) Can the Legislature have intended that all “charges”on the bill “regardless of the originator”be subject to “Section 451 review” to determine whether they are “just and reasonable,” but that with respect to “rules” Section 451 Review applies only to those “made by a public utility’? The rules of statutory construction reject that outcome. A word givena particular meaning in onepart of a statute should be given the same meaning throughout. (Hassan v. Mercy American River Hospital (2003) 31 Cal.4th 709, 715.) If “charges,” as used throughoutthe statute, mean the charges originating with the public utility itself, the final sentence of Section 451 is consistent with the balance of the Public Utilities Code. (See, e.g., Section 454 [showing required before public utility changes anyruleresulting in -22- new rate]; Section 532 [public utility proscribed from extending any “rule” unlessthe rule is extendedto all uniformly].) By contrast, if “charges” embraces anything ontheutility bill “regardless of the originator,” Section 451 Review extend notonly to taxes and fees collected throughthe utility bill, but to any “rule affecting or pertaining to its charges.” The Legislature cannot possibly have intended to subject government bodies to such scrutiny. 4. Section 451 Cannot Be Deemed An Express Authorization By the Legislature for the Commission to Exercise Authority Over Petitioner’s Fee. In the absence of “express authority” from the Legislature, the Commission may not regulate the activities of non-public utilities. (Znyo, supra, 26 Cal.3d at p. 166.) The Commission accepts this premise but nevertheless argues that Section 451 provides it with authority to scrutinize taxes or fees imposed by governmententities if they are collected through a public utility bill. (Rehearing Decision, at p.5.) While this court has recognized statutes found to provide the Commission the requisite “express authority” to regulate an activity of government,’ Section 451, by contrast, makesnoreferenceatall to the Commission. The absence of any such reference makesit impossible to characterize Section 451 as “expressly authorizing” the Commission to exercise jurisdiction over Petitioner’s collection of its user fee. '> See Los Angeles Metropolitan Transit Authority v. Public Utilities Com. (1963) 59 Cal.2d 863, 866 [stating the Los Angeles Metropolitan Transit Authority Act expressly gave the Commission jurisdiction over safety rules and regulations]. -23- 5. The Commission’s construction of Section 451 conflicts with the relevant statutory scheme Therules of statutory construction ask whethera particular construction ofthe statute is consistent with the balance of a relevant statutory scheme. (McCarther v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110 [statutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extent possible]; San Leandro Teachers Ass’n v. Governing Bd. ofSan Leandro Unified School Dist. (2009) 46 Cal.4th 822, 831 [courts do not consider statutory languagein isolation, but instead examinethe entire substance ofthe statute in order to determine the scope and purposeofthe provision, construing its wordsin context and harmonizingits various parts]; Prospect Medical Group Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 506 [courts do not consider statutory languagein isolation, but in context of the statutory framework as a whole in order to harmonize the various parts of the enactment].) Here, the Commission’s constriction of Section 451 is inconsistent with both the Public Utilities Act'® governing the Commission andthe District Law governing Petitioner. The central jurisdictional tenet of the Public Utilities Act and Article XII, section 3, of the State Constitution is the limitation of the Commission’s authority to private persons or corporations. (Jnyo, supra, 26 Cal.3d at p 164; Santa Clara, supra, 124 Cal.App.4th at p. 356.) The Commission’s assertion of “Section 451 '® The Public Utilities Act (Pub. Util. Code §§ 201-2113) wasfirst enacted in 1911 (Stats. 1911 (1st Ex. Sess.), ch. 14, § 1), and was reenacted in 1915 (Stats. 1915, ch. 91, § 1). (See Lakusta, Operations in an Agency Not Subject to the APA: Public Utilities Commission (1956) 44 Cal. L. Rev. 218, 219, fn. 8.) Section 451 is derived from section 13 of the 1915 enactment. (Stats. 1915, ch. 91, § 13.) - 24 - Review”over a governmenttax or fee appearing on a utility bill directly conflicts with this principle. The Commission’s construction is also inconsistent with District Law, pursuant to which Petitioner is expressly vested with the power to imposetheuser fee (District Law, § 326, subd. (b),) and collect it through the bill of a public utility. (/d. at § 326, subd. (d).) District Law does not authorize or direct Petitioner to seek approval from the Commissionprior to imposing andcollecting the user fee. Indeed, as is the case with respect to Section 451, the Commission is never mentioned. The Commission’s interpretation of Section 451 is therefore incompatible with both the Public Utilities Act and District Law, the two statutory schemes implicated by the Commission’s new “Section 451 Review”of governmenttaxes andfees. 6. The Rules of Statutory Construction Appropriate to This Dispute Require that the More-Specific Termsof the District Law Supersede the Broad Termsof Section 451 In Santa Clara, supra, the Sixth District Court of Appeal summarized the applicablerules of statutory construction to be employed where,as here, onestatute is advanced to support the lawfulness of a Commission act while another statutory schemeis advanced to support the contrary conclusion:“If conflicting statutes cannot be reconciled,later enactments supersede earlier ones, and morespecific provisions take precedence over more generalones. . . . The courts assumethat in enacting a Statute the Legislature was aware of existing, related laws and intended to maintain a consistent bodyofstatutes.” (Santa Clara, supra, 124 Cal.App.4th at p. 360 [internal quotation marksandcitations omitted].) Application ofthe rules articulated in Santa Clara dispels any notion that Section 451 can be applied to preclude Petitioner from exercising its powersunderDistrict Law. -25- a. The Legislature Was Presumed to Be Aware of Section 451 Whenit Enacted the District Law in 1977 Whenthe Legislature enacted the District Law in 1977, authorizing Petitioner to collect fees through a public utility, it was presumed to be aware of Section 451. (Cf. Santa Clara, supra, 124 Cal-App.4th at p. 360.) Therules of statutory construction presumethatif the legislature intended to subject fees enacted by the new District to Section 451 Review,it would have so provided. In Santa Clara, the Court was required to determine whether Sections 1201 and 1202 ofthe Public Utilities Code applied to a public transit district. It noted the obvious, “[i]f the Legislature had wanted sections 1201 and 1202 to apply to transit districts, it could simply have said so." (Santa Clara, supra, 124 Cal.App.4th at p. 365 .) The same logic applies here. It cannot be presumed that when the Legislature created Petitioner in 1977, and authorized Petitioner to impose a user fee “collected by [a] private or public utility” (District Law, supra, at § 326), the Legislature also intended to relegate that newly-created authority to Commission review under a broadly-worded statute enacted manyyears earlier to govern privately ownedpublic utilities. (Cf. Santa Clara, supra, 124 Cal.App.4th at p. 360.) b. The More-Specific Provisions of District Law Take Precedence over the Broad Rule in Section 451. It is the rule that “a specific provision of a statute controls a general provision.” (People ex rel. Public Utilities Commission v. City ofFresno (1967) 254 Cal.App.2d 76, 84.) District Law specifically enumerates the powers and duties of Petitioner; Section 451 only states a general rule that charges demandedorreceived by public utilities be “just and reasonable.” ~ 26 - The more-specific terms of the District Law govern. (/bid. [holding specific provisions of the Code of Civil Procedure governing eminent domain took precedence over general provisions of the Public Utilities Code such that the Commission was without authority to review a municipality’s acquisition of a public utility water system by condemnation].) 7. Any Conflict Between District law and Section 451 must be Resolved in Favor of the Later-Enacted Statute. Wherein conflict, the terms of a later enacted statute govern over those of an earlier enactment. (Santa Clara, supra, 124 Cal.App.4thatp. 360.) Section 451 was enacted in its current form in 1951 but is derived from legislation enacted in 1911 after the creation ofthe original California Railroad Commission.'’ District Law was enacted in 1977, and established a detailed statutory frameworkfor Petitioner’s operations. Assuming, arguendo, Section 451 established some form of Commission authority over non-utility charges on a utility bill, that authority, at least with respect to Petitioner, was abrogated by the later-enacted District Law expressly authorizing Petitioner to imposea user fee and provideforits collection by a public utility. The later-enacted statute effectively repeals any limitation on Petitioner’s authority that mightarise out the broadly-stated, century-old Section 451, which simply provides that public utility rates be “just and reasonable.” (Cf. Santa Clara, supra, 124 Cal.App.4th at p. 360.) ' See fn. 16, supra. -27- VI. THE COMMISSION’S INTERPRETATION OF SECTION 451 IS ABSURD AND IMPERMISSIBLY EXPANDS THE COMMISSION’S JURISDICTION. Wherea statute is theoretically capable of more than one construction, courts choose that which most comports withthe intent of the Legislature. Words must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible. Interpretive constructions which render some wordssurplusage, defy commonsense,or lead to mischief or absurdity, are to be avoided. (McCarther v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110; California Manufacturers Ass’n. v. Public Utilities Com. (1979) 24 Cal.3d 836, 844.) The Rehearing Decision announcesthe application of “Section 451 Review,” whichis nothing short of granular scrutiny, to government taxes and fees collected through utility bill.'? Neither the Rehearing Decision, nor any other Commission decision, however, explain how a government entity is to seek such review sothat it maycollectits tax or fee through a utility bill. No provision of the Public Utilities Code fixes substantive or procedural requirements for Commission review of government taxes and '® Here, Section 451 Review included determining that (1) Petitioner’s inclusion of both the ASR project and the Mitigation Program in the user fee is “not consistent with the Commission’s ratemaking standards” (D.11- 03-035, at pp. 11-12); (2) Petitioner had failed to justify the percentage increase in annualcollections ofthe user fee since 2006(id. at p. 12); (3) Petitioner did notinclude certain itemized costs in its Mitigation Program report, such as the rebate program, project expenditures for “ordinance enforcement”, and salaries for the Conservation Office Staff (id. at pp. 12- 13); and (4) it was not explained howcosts related to endangered species are divided between the National Oceanic and Atmospheric Administration steelhead mitigation activities and Petitioner’s activities that also focus on steelhead fisheries. (/d. at p. 13.) - 28 - fees. While § 454, for example, establishes a customer notice requirement for rate increases, it only applies to public utilities. Nordo the Commission’s Rules of Practice and Procedure provide for Commission review of fees or taxes imposed by public entities. The rules governingrate applications plainly apply only to publicutilities already regulated as such by the Commission. (20 Cal. Code Regs. § 3.2.) Were the Commission to “categorize” the governmententity’s request, as required by Public Utilities Code Section 1701.1, subdivision (a), the closest applicable category is defined by Rule 1.3, subdivision (e), which states: “‘Ratesetting’ proceedings are proceedings in which the Commission sets or investigates rates for a specifically named utility (or utilities), or establishes a mechanism that in turn sets the rates for a specifically namedutility (orutilities).” (20 Cal. Code Regs. § 1.3, subd. (e).) Governmententities, however, are not public utilities. The Public Utilities Code and the Commission’s Rules do not provide the mechanism orjurisdiction for Section 451 Review of governmenttaxes and fees. Requiring such review despite this deficiency would lead to enormouspractical and jurisdictional confusion. The Commission has nojurisdiction over such taxes or fees, and has never sought to exercise jurisdiction over such taxes or fees, even when included, as they have been for decades, on a publicutility bill. -29 - VII. INTHE ALTERNATIVE, GRANTING REVIEW AND TRANSFERRING THE MATTER TO THE SIXTH DISTRICT COURT OF APPEAL IS AN APPROPRIATE WAY TO ADDRESS THE COMMISSION’S UNLAWFUL DECISION California Rule of Court, Rule 8.500, subdivision (b)(4) (‘Rule 8.500(b)(4)”’) provides that this court may grant review for the purpose of transferring the matter to the Court of Appeal for such proceedings asthis court deems necessary. But for the provisions of Public Utilities Code section 1756, subdivision (f) (“Section 1756(f)”), which gives this Court original jurisdiction over Commission decisions pertaining to water corporations (except in complaint or enforcement proceedings), this matter would be brought before the Sixth District Court of Appeal. (Pub. Util. Code § 1756, subds. (a), (d).) Thelegislative history of Section 1756(f) indicates the Legislature differentiated between the competitive energy, telecommunications and transportation markets and the traditional monopoly market served by water corporations. (Stats. 1998, ch. 886 (SB 960), § 1.5, subd. (a).) The Legislature believed expanded appellate review with regard to that monopoly water utility market was inappropriate and, accordingly, original jurisdiction remained vested in the Supreme Court. (/bid.) The provisions of Section 1756(f) apply here as a matter of form because the publicutility bill at issue is that of Cal-Am, a water corporation. The substance of the matter for which review is sought, however, is not of the nature the Legislature envisioned whenit retained original Jurisdiction over water corporations for the Supreme Court. The issue presented here is not informedby the nature of the market served by the utility. The user fee at issue could have been lawfully imposed and collected via the bills of a gas orelectric utility or transportation provider. The outcomehereis neither affected by whether Cal-Am operates in a - 30 - monopoly or competitive market nor wouldit affect Cal-Am’s status in that market.'’Rule 8.500(b)(4) allows this Court to exercise its original jurisdiction overthis case by granting review, but also provides a mechanism for a reasonable allocation ofjudicial resources by allowing the matter to be transferred to a District Court of Appeal with instructions for further proceedings. Petitioner is cognizant of this Court’s crowded docket, andin light of the proforma nature of this Court’s original jurisdiction, believes the strained resources of our State’s judicial system would be best allocated by transferring this matter to a District Court of Appeal. The Sixth District encompasses Monterey County. Petitioner is situated in Monterey County, and the disputed user fee was assessed on residents and businesses in Monterey County. The Sixth District is, therefore, the proper Court of Appeal to review the Commission’s unlawful decision. (Pub. Util. Code § 1756, subd. (d).) Petitioner therefore respectfully requests that this Court, in the alternative, grant review andtransfer to the Sixth District Court of Appeal for further proceedings. '? For example, the Los Angeles Telecommunications User Tax, supra fn. 5, applies to any customer of myriad carriers in the very competitive telecommunications market. -31- Vill. CONCLUSION For the foregoing reasons, Petitioner respectfully requests that the Court grantthis Petition for Review. Alternatively, Petitioner respectfully requests that the Court grant review and transfer to the Court of Appeal for further proceedings. Dated: February 22, 2013 GOODIN, MACBRIDE, SQUERI, DAY & LAMPREY, LLP 505 SansomeStreet, Suite 900 San Francisco, CA 94111 Suzy Hong Megan Somogyi DeLAY & LAREDO David C. Laredo 606 Forest Avenue Pacific Grove, CA 93950 Ce, 2 By: eopee ——— Thomas J.MacBride, Jr. 4 Attorneys for Petitioner x Monterey Peninsula Water ManagementDistrict -32- CERTIFICATE OF WORD COUNT Counselcertifies that under California Rules of Court, Rules 8.204(b) and 8.504(d), this Petition is produced using 13-point Times New Romantype and contains 8,018 words, exclusive of Tables, Indices, Exhibits, and Certifications, as counted by Microsoft Word, the program used to create this document. Dated February 22, 2013. By ALhus ane obi JO -33- VERIFICATION I, Thomas J. MacBride,Jr., declare that as counsel for the Petitioner, I am familiar with the proceedings givingrise to the Petition for Writ of Reviewrelief from the California Public Utilities Commission’s decisions at issue. I have read the foregoing Petition, andit is true ofmy own knowledge, except as to those matters stated on information and belief, and as to those matters, I believe them to be true. If called as a witness, I could and would testify competently thereto. I declare underpenalty of perjury underthe laws ofthe State of California that the foregoingis true and correct andthat this verification was executed in San Francisco, California on February 22, 2013. Thomas J. MacBridé€, Jr. 3465/001/X149235.v1 -34- ALJ/MAB/jyc Date of Issuance 3/25/2011 Decision 11-03-035 March 24, 2011 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA In the Matter of the Application of California- American Water Company (U210W)for an Order Authorizing the Collection and Application 10-01-012 Remittance of the Monterey Peninsula Water (Filed January 5, 2010) ManagementDistrict User Fee. DECISION DENYING APPROVAL OF SETTLEMENT AGREEMENT AND AUTHORIZING AMENDMENTTO APPLICATION Summary This decision finds that the settlement agreementfails to meet the Commission’s standards for approving settlement agreements and denies approvalof the settlement agreement. It also authorizes the applicant to amend the application consistent with this decision. Background In Decision (D.) 09-07-021, the Commission authorized California- American Water Company (Cal-Am)to increase waterrates in its Monterey district by over 40% for the three-yearrate case cycle. In that Decision, the Commission also considered the user fee that Cal-Am had beencollecting on behalf of the Monterey Peninsula Water ManagementDistrict (Management 447487 -l- A.10-01-012 ALJ/MAB/jyc District). The user fee wasset at 8.325% of all meter and water chargesbilled by Cal-Am in the Montereydistrict.! The Commission beganits analysis by noting that the substantial rate increase in Cal-Am’s MontereyDistrict imposed “significant financial burdens on residential and business customers” and required thatall “proposed expenditures be demonstrably necessaryfor reliable service and provide value to customers.” With this context of closely scrutinizing increased customercharges, the Commission expressed concern that “Cal-Am’s customers maybe paying user fees to the ManagementDistrict for projects that may not be necessary or cost effectively performed by the ManagementDistrict.” The Commission noted that the “ManagementDistrict has a variety of funding mechanisms atits disposal over which this Commission hasno jurisdiction,” specifically: The ManagementDistrict is authorized to issue bonds, assess charges for groundwater enhancementfacilities, levy assessments on real property and improvements, andfix, revise, and collect rates and charges for theservices,facilities, or water furnished by it. For general administrative costs and expenses, as well programs of general benefit, the ManagementDistrict is authorized to levy a second property tax of up to $0.10 per $100 in assessed value.? Turning its attention to the ManagementDistrict’s user fee, the Commission observed that the “ManagementDistrict's choice of a percentage assessment, rather than a fixed amount, hasthe effect of substantially increasing the total amountcollected by the ManagementDistrict for the identified projects 1 The Commission’s discussion of the ManagementDistrict's fee proposal is found at 116 through 123 of mimeoversion of D.09-07-021. All quotations in this section are to those pages. 2 D.09-07-021, mimeo at 117, quotations and citations omitted. A.10-01-012 ALJ/MAB/jyc as Cal-Am’srates increase.” The Commission noted that the user fee generated $1,860,000 in revenue during fiscal year 2006. With approximately $42 million in operating revenues adopted in D.09-07-021 for test year 2009,at the levelof 8.325%, the fee would generate about $3,500,000 for the ManagementDistrict, an 88% increase from 2006. The Commission next expressed concern with the incomplete explanation offered by the ManagementDistrict for all componentsof the user fee. The Commissionstated that of the current 8.325% fee, 7.125% is attributed to Carmel River mitigation measures, which was explained, but the ManagementDistrict offered no explanation for the remaining 1.2% whichis for the Aquifer Storage and Recovery project costs. In light of these concerns with ManagementDistrict’s user fee, the Commission pointed to an alternative approach that Cal-Am andthe ManagementDistrict have previously used to ensure cost-effective coordination on a joint project for water conservation programs. This joint project approach, which included recovery of the ManagementDistrict’s costs from Cal-Am’s customers by a surcharge placed on the customers’ bills, was approved by the Commission in D.06-11-050. The Commission concludedits discussion of the ManagementDistrict's user fee by emphasizing thatto the extent Cal-Am andits ratepayers are legally responsible for Carmel River Mitigation or Aquifer Storage Projects, the Commission expected Cal-Am to meetthat “responsibility in an efficient and effective mannereither by its own actionsor as a joint project with the ManagementDistrict.” To achieve this objective, the Commission directed Cal-Am to (1) meet and confer with the ManagementDistrict regarding “cost effective and efficient methods for Cal-Am to fully meet any responsibility it may -3- A.10-01-012 ALJ/MAB/jyc havefor the Mitigation Program and the Aquifer Storage and Recovery project” and to particularly discuss the possibility of implementing them asjoint projects, and to then (2) file an application setting forth any new methodofcollecting funds to support ManagementDistrict program costs properly assignable to Cal-Am, whether performed by Cal-Am or the ManagementDistrict. The Commission also authorized Cal-Am to file an Advice Letter for a Memorandum Accountto record costs that are Cal-Am’s responsibility on an interim basis. Cal-Am filed Advice Letter No. 785-A that established the Monterey Peninsula Water ManagementDistrict User Fee Memorandum Account. The Memorandum Accounttrackscosts for projects which Cal-Am has proper responsibility for and has funded, and that are performed by the Management District. The Memorandum Account was madeeffective July 20, 2009. Description of the Application OnJanuary 5, 2010, Cal-Am filed this application seeking Commission approvalof “a program to fund projects currently performed bytheDistrict that are properly the Company’sresponsibility” by authorizing Cal-Am to “collect funds requiredbythe[District] to carry out projects on behalf of the Company and which the Company would otherwise have to carry out.”3 The application specified that stated Cal-Am would “collect from the Company’s Monterey District customers and remit to the Monterey Peninsula Water Management District the Monterey Peninsula Water ManagementDistrict User Feeat the rate set by the Monterey Peninsula Water ManagementDistrict’s Board of 3 Application at 2 - 3. A.10-01-012 ALJ/MAB/jyc Directors.”4 The application also sought Commission authorization to collect from its Monterey District customersall amounts recorded in its Monterey Peninsula Water ManagementDistrict Memorandum Account, which it estimates will total over $5 million if the application is pending for 18 months. In supportof its application, Cal-Am provided testimony from its Director of Rates and Regulation andits Vice President of Engineering. In the application, Cal-Am contended that the proposed “percentof revenue”basis for calculating the user fee will not impose “a significantfinancial burden”on its customers because the ManagementDistrict adopts it budget in a “transparent public process” and that the California Constitution prohibits the ManagementDistrict from collecting more than it spends on project Cal-Am also argued that the Commission should abstain from reviewing the ManagementDistrict's user fee, as it does with other local governmentfees and taxes, or should only reviewit to ensure “that utility customers are not paying for duplicative work”oractivities that “run counter to the Commission’s comprehensive schemefor regulating utilities.”¢ In its application, Cal-Am stated that the State Water Resources Control Board has imposed a “contingent obligation” on Cal-Am to implementthe ManagementDistrict's Carmel River Mitigation Program, should the ManagementDistrict ever cease doing so.” Cal-Am stated thatin its 1995 decision, the Board expressed “accolades” for the ManagementDistrict’s 4 Application at 19. > Application at6. 6 Application at 12. 7 Application at 10. A.10-01-012 ALJ/MAB/jyc Fisheries Mitigation Program,and the Riparian Vegetation and Associated Wildlife Mitigation Program. The ManagementDistrict also supplied supporting testimony for Cal-Am’sapplication. The testimony of the ManagementDistrict’s General Managerexplainedthe legislative creation of the ManagementDistrict andits various powers. The General Manager's testimonyalso described the 1990 process that produced the Carmel River Mitigation Program. The testimony included the 2007-2008 Annual Reportfor the Mitigation Program, dated September 2009. This report included the only cost data presented for the Mitigation Program. In the Executive Summarysection, the report states that: “a trend analysis showsthatthe overall costs remainedfairly constant(about $1.3 - $1.7 million) for many years, exceptfor FY 2000, when an additional $981,786 was addedto the capital expense program to fund onehalf of the acquisition cost of the District’s new office building, bringing the expendituretotal over $2.6 million for that year. Morerecently, expenditures continue to trend upward: FY 2005-06 expenditures were $3.17 million; and FY 2006-07 were $3.29 million. ...The Mitigation Program FundBalanceasof June 30, 2008, was $999,898.”8 Section XIII of the annual reportis entitled “Summary of Costs for the Mitigation Program - July 2007 through June 2008” and consists of one page of text followed by one table showing the “cost breakdown.” Thetablestates that: “This report does not include the Rebate Program,salaries for the Conservation 8 Darby testimony at Exhibit 3, at I - 14. A.10-01-012 ALJ/MAB/jyc Office Staff or the project expenditures for ‘Ordinance Enforcement’ even though they were bookedaspart of the Mitigation Program.” The table showsseven cost components, broken downinto “personnel Wot wocosts,” “operating expenses,” “project expenses” and “fixed asset acquisitions.” The total expenditure amount shownis $3,671,996, with personnel comprising the largest amount, $1,660,034. The second largest amount shownis just under $1 million for unspecified “project expenses” for “water supply.” Setting aside that $1 million expenditure, the most expensive cost componentis “administrative” at $689,235. Chapter VI discusses the specific program elements for “water supply” and adopts twospecific goals: (1) determine and participate in long-term water supply solutions, which focuses on participation in the various forumsfor the Coastal Water Project and Community Outreach; and (2) the Aquifer Storage and Reclamation Project, specifically to complete Phase I and continue work on the next Phase. The testimony of the ManagementDistrict’s Chief Financial Officer explains the history and derivation of the user fee. The Chief Financial Officer stated that the ManagementDistrict and Cal-Am agreed that the “device of a water user fee was the most equitable” meansto fund the District’s Mitigation Program, and Cal-Am required that any such revenuecollection means “would not putthe utility at risk.”9 The testimonystates that the ManagementDistrict Boardset the current user fee amountof 7.125% for the Mitigation Program ina 1992 Ordinance, and that the Board set the Aquifer Storage Project user fee at an additional 1.2% in 2005 based on the Board’s determination that the Aquifer 9 Dickhaut Testimonyat3. A.10-01-012 ALJ/MAB/jyc Storage Project would be “funded on a pay-as-you gobasis rather than via debt financing.” Althoughnotincludedin the testimony, the ManagementDistrict’s Ordinance No.67, adopted December8, 1992, with a purposeto “increase user fee revenue available for the Five Year Mitigation Program”retains thetotal 7.125% fee but also includes within that amount 1.11% that wasreallocated from conservation programs. The ordinancestates that the total 7.125% user fee “shall not be exclusively dedicated to a single activity or program, but instead may be allocated at the discretion of the Board provided that all such expensesshall confer benefit and/or service to existing water users.”10 Similarly, the ManagementDistrict’s Ordinance No. 123, adopted September13, 2005, sets an additional user fee componentof 1.2% to fund Aquifer Storage and Recovery Project and related water supply expenses. That ordinance, like the Mitigation Program ordinance, retains the Board'sdiscretion to “allocate” the proceeds from this user fee to any endeavorthat “confers benefit and/or service” to Cal-Am customers."! Cal-Am provided testimony from its engineer and the Management District’s engineer showing that the Aquifer Storage and Recovery Projectis a joint project between the twoentities to store excess winter Carmel River water in the Santa Margarita aquifer for use during the summer. Generally, Cal-Am is providing improvementsto its water main distribution system to enable the conveyance of water throughits system to wells owned by the Management 10 ManagementDistrict Ordinance 67, Section 3.C. (December8, 1992.) ManagementDistrict Ordinance 123, Section 2. A.10-01-012 ALJ/MAB/jyc District for injection into the aquifer and then for the extraction and conveyance of the water back into Cal-Am’s system.12 The ManagementDistrict submitted testimony showingthat it owns certain waterrights that are essential to the Aquifer Storage and Recovery Project and that it has constructed two wells andrelated facilities that comprise Phase I of the Aquifer Storage and Recovery Project.13 The testimonyalso explained that the entire project is operated and managed pursuantto an agreement between Cal-Am and the ManagementDistrict dated March 28, 2006. The testimony included cost data showingthat PhaseI testing and construction costs were $4,176,931, exclusive of staff time and permitting costs, with $1,620,300 in costs remaining, and that the projected costs for PhaseII are $5,042,400.14 The projected firm yield of Phase I is 920 acre-feet/year, with Phase II estimated to yield an additional 1,000 acre-feet/ year.15 With approximately $42 million in operating revenues adopted in D.09-07-021 for test year 2009, at the requested level of 1.2%, the Aquifer Storage and Recovery Project componentof the user fee would generate about $504,000 per year for the ManagementDistrict. Description of the Settlement Agreement On May18, 2010, Cal-Am, the ManagementDistrict and the Division of Ratepayer Advocates filed their joint motion to approve settlement agreement. The settlement agreementstated that the parties agreed that: 22 Testimony of Schubertat 4 - 8. 13 Testimony of Oliver at 4 - 11. 14 Jd. at Oliver Exhibits 6, 7, and 11. 15 Td. at 7 and 13. A.10-01-012 ALJ/MAB/jyc 1. The ManagementDistrict’s Carmel River Mitigation Program is non-duplicative, and reasonable and prudent. 2. The ManagementDistrict’s Aquifer Storage and Recovery Program is non-duplicative, and reasonable and prudent. 3. The Commission should authorize Cal-Am to collect and remit the user fee to the ManagementDistrict at the rate set by the ManagementDistrict. The settlement agreementalso stated that the interest rate to be assessed on the Memorandum Accountbalance should be 5%. The parties also agreed that the Commission should receive into evidenceall testimony that has been served in this matter. Discussion Standard of Review — Settlement Agreement In this application, Cal-Am bears the burden of proof to show its requests are just and reasonable and the related ratemaking mechanisms are fair. In order for the Commission to approve any proposedsettlement, the Commission must be convinced that the parties have a sound and thorough understandingof the application, the underlying assumptions, and the data includedin the record. This levelof understandingof the application and developmentof an adequate record is necessary to meet our requirements for considering any settlement.1é These requirementsare set forth in Rule 12.1 of the Commission’s Rules of Practice and Procedure, whichstates, in pertinentpart: 16 In the Matter of the Application of Park Water Company for Authority to Increase Rates Charged for Water Service by $1,479,580 or 5.99% in 2010, $503,371 or 1.91% in 2011, and $643,923 or 2.40% in 2012, D.09-12-001, mimeoat 19 -20. -10- A.10-01-012 ALJ/MAB/jyc The Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest. For the reasonsstated below,we are unable to find that the provisions of the settlement agreementare consistent with Rule 12.1. Reasonablein Light of the Record as a Whole The record consists of Cal-Am’s application with supporting testimony. In its application, Cal-Am seeks Commission authorization for “the device of a user fee” that will be “collected at rates set by the District’s Board of Directors” for the ManagementDistrict to fund any endeavorthat the ManagementDistrict determines will confer “benefit and/or service” to Cal-Am’s customers. Cal-Am justifies this request as “an appropriate meansto fund projects,(i.e., the Aquifer Storage and Recovery Program and Mitigation Program) currently performedby the District but properly or ultimately the responsibility of the Company.”1” As described above, however, Cal-Am’s user fee proposal is not based on the costs of these two programsandincludes no ratemaking or programmatic limitations. Consequently, the record in this proceedingis not sufficient for settling parties to meet their burden of justifying the Commission’s ratemaking approvalof the settlement agreement. Specifically, the record showsthat the ManagementDistrict’s presentation on the Aquifer Storage and Recovery Project includes this Project in both the Mitigation Program for which it seeks an assessment of 7.125%, and as a separate componentfor another 1.2%. The ManagementDistrict’s Chief Financial Officer 17 Applicationat5. -11- A.10-01-012 ALJ/MAB/jyc stated that the ManagementDistrict Board has decided to fundthis project ona “pay-as-you-go”basis rather than incurring debt. While the Management District’s decision has the advantage of avoiding debtcosts, such a decision results in current customers paying thefull costs of a project that is expected to provide service for many years. This is not consistent with the Commission’s ratemaking standards. Turning to the Carmel River Mitigation Program, Cal-Am’spresentation doeslittle to respond to the issues identified by the Commission in D.09-07-021. Cal-Am continues to seek a percentage assessment but offers no cost-justification for theproposed 88% increase in annualcollections since 2006. The Management District’s own report showsthat annualcosts were stable at $1.3 to $1.7 million for “many years” but in recent years have more than doubledthat, without explanation. The exception to the stable cost levels was in 2000 whenthe ManagementDistrict used nearly a million dollars of Mitigation Program revenuesto fund half its new office building. Cal-Am’sapplicationraises several issues, most notably several instances where duplication in effort and accounting may occur. In addition to the apparent double-counting of the Aquifer Storage and Recovery Project as both a part of the user fee Mitigation Program costs and also to substantiate a stand- alone additional componentof the userfee, “water supply augmentation’is a major cost componentof the ManagementDistrict’s Mitigation Program which largely focuses on the Coastal Water Project. Cal-Am, however,is actively involved in the Coastal Water Project, such that the ManagementDistrict need not act on Cal-Am’sbehalf. The ManagementDistrict’s Mitigation Program reportalso indicates that it does not include the “rebate program,salaries for the Conservation Office Staff or project expenditures for ‘ordinance enforcement’” -12- A.10-01-012 ALJ/MAB/jyc even thoughsuch costs are “booked as part of the Mitigation Program.” The Commission, however, has approved and separately funded a joint conservation program with the ManagementDistrict which would appearto includeat least someconservation costs. Finally, Cal-Am asserts that National Oceanic and Atmospheric Administration (NOAA) steelhead mitigation activities!’ focus on impacts to steelhead, and that these activities have no “overlap” with the ManagementDistrict's activities which also focus on the steelhead fishery but the record showsnoanalytical explanation for how endangeredspeciescosts for steelhead are divided between the two agencies or any evidence that Cal-Am is in any way managingthese costs for ratepayers. With the total costs for the two programs approaching $5 million a year, Cal-Am must demonstrate necessity andcost-effectiveness of both components before the Commission can approve a joint program of the kind we requested Cal-Amto proposeto use in D.09-07-021. Ourgoals are to ensure cost control by these two agencies. To find a settlement agreement reasonablein light of the record, the Commission must conclude that the parties used their collective experience to produce appropriate, well-founded recommendations. As set forth above, the record containsinsufficient cost justification, several instances of apparent double-counting, and ratemaking treatment at odds with our standards. Accordingly, we are unable to concludethat the settlement agreementis reasonablein light of the record. 18 In Resolution W-4836, Cal-Am obtained Commission authorization to recover from customers $3.5 million paid to the NOAA for “Endangered Species Act mitigation activities on the Carmel River.” -13- A.10-01-012 ALJ/MAB/jyc Consistent With Law and Prior Commission Decisions The parties assert that the Mitigation Program componentof the User Fee is consistent with applicable law because “the Mitigation Program .. . is required by the California Environmental Quality Act.”19 The parties offered no justification for the other components of the proposed userfee. The Commission is charged with the responsibility of ensuring settlement agreements are consistent with other applicable law and prior Commission decisions. The Public Utilities Code requires that all rates received by a public utility be just and reasonable: “no public utility shall change anyrate... except upon a showing before the Commission, and a finding by the Commission that the new rate is justified.”2 In D.09-07-021, the Commission indicated its willingness to include in the MontereyDistrict revenue requirementall costs of the Carmel River Mitigation Program and Aquifer Storage and Recovery Project that are properly Cal-Am’s responsibility. The Commission required, however, that such costs must be shownto be necessary andcost-effectively performed by the Management District. As presented in the application and carried forward in the settlement agreement, Cal-Am’sjustification for assessing these costs to its ratepayers does not demonstrate that the ManagementDistrict’s user fee meets the Commission's standards. Asset forth above, the Commission explained its concerns regarding the ManagementDistrict’s proposed “percent of revenue”basisfor its userfee. Nevertheless, Cal-Am has presented an application which persists with such a 19 Joint Motion to Approve Settlement Agreementat6. 20 Pub. Util. Code §§ 451 and 454. -14- A.10-01-012 ALJ/MAB/jyc proposalandoffers no compellingjustification. Cal-Am’s contention that the ManagementDistrict’s “transparent” budgetary process somehow obviates the Commission's concerns with a non-cost-based user fee is not persuasive. Therefore, we concludethat the settling parties have failed to demonstrate that the settlement agreementis consistent with D.09-07-021. The Public Interest For the reasonsset forth above, wefind that the user fee proposal as described in the application and settlement agreementis not in the public interest. The settling parties’ motion for approvalof the settlement agreement should, therefore, be denied. Cal-Am’s Responsibilities under Order No. WR 95 The State Water Resources Control Board imposed the responsibility on Cal-Am to implementall measuresin the “Mitigation Program for the District's Water Allocation Program Environmental Impact Report” not implemented by the ManagementDistrict.21_ The 1990 Environmental Impact Report (EIR) documentreferenced in the Board's decision is attached to the Management District's General Manager’s testimony in this proceeding, and was adopted by the ManagementDistrict’s Board in November 1990. The adopted mitigation measures are summarized at Exhibit 1 to that EIR and the following page, Exhibit 2 Table, containscost estimates for each measure. The Mitigation Program summaryin Exhibit 1 is substantially similarto the list set forth in the Board's Decision 95-10 in Section 6.2 “Water Allocation Mitigation Program,” so 21 State Water Resources Control Board Decision 95-10 at Ordering Paragraph 11. -15- A.10-01-012 ALJ/MAB/jyc weconcludethatthis is the Mitigation Program which the State Water Resources Control Board has madea contingentobligation of Cal-Am. The three headings for the mitigation measuresare:fisheries, riparian vegetation and wildlife, and lagoon vegetation and wildlife. Exhibit 2 Table contains cost estimates for each measure, broken downinto capital, $442,700, and annual expenses, $323,100.22 The EIR Exhibit 2 Table provides an ideal beginning point to prepare a budget for the Mitigation Program that is Cal-Am’s responsibility, and is attached to today’s decision for ease of reference. One way for Cal-Amto justify the amountof funding required to perform these three mitigation program elements is for Cal-Am to obtain up-to-date cost and budget data from the ManagementDistrict specific to these three mitigation measures which are Cal-Am’s contingent responsibility. Those data can then be used to update the Exhibit 2 Tableasthebasis for justifying a forward-looking rate mechanism to fund the three mitigation measures, should the ManagementDistrict cease to implement these mitigation measures. In D.09-07-021, the Commission emphasized that to the extent Cal-Am and its ratepayers are legally responsible for Carmel River Mitigation, the Commission expected Cal-Am to meetthat “responsibility in an efficient and effective mannereither by its own actions oras a joint project with the ManagementDistrict.” If the ManagementDistrict ceases to perform these mitigation measures, then Cal-Am must prepare and implementa plan to meet this responsibility. 22 The table also includes $6,000 for “aesthetics” which is not referenced in Order 95-10 as a Cal-Am obligation. -16- A.10-01-012 ALJ/MAB/jyc Next Steps The findings and conclusionsin today’s decision address many of the substantive issues raised by Cal-Am’s application. Asdiscussed above, Cal-Am’sapplication sought Commission approvalof “a program to fund projects currently performedbythe District that are properly the Company’s responsibility” by authorizing Cal-Am to “collect funds required by the [District] to carry out projects on behalf of the Company and which the Company would otherwise haveto carry out.”2 As also set forth above, the parties to the settlement agreement represented that the application met the Commission’s ratemaking standards by being “non-duplicative, and reasonable and prudent.” For reasonsset forth in D.09-07-021 andreiterated above, we decline to approve the ratemaking proposalin the application as filed. Similarly, werepeat our supportfor the joint project approach to funding the Carmel River Mitigation program and the Aquifer Storage and Recovery Project. Therefore, to ensure that Cal-Am fully discharges its responsibilities for the Carmel River Mitigation Program, wewill authorize Cal-Am to amendits application within 60 daysof the effective date of today’s decision byfiling and serving oneofthe following; 1. a joint program proposalfor the District to perform the Carmel River Mitigation measures based on an updatedversion of the budget set out in Attachment1, and to fundthe District’s portion of the Aquifer Storage and Recovery Project, or 2. implementation plan for Cal-Am to assumedirect responsibility for the Carmel River Mitigation measures, should the District cease to implementthese measures. 2 Application at 2 - 3. -17- A.10-01-012 ALJ/MAB/jyc As noted above, Cal-Am has been recording payments to the District ina memorandum account, and the District has been performing all Carmel River mitigation measuressince July 2009. Under the unique circumstances and history of the District's user fee and mitigation program, includingparticularly that the funds have been remitted to a governmentagency, wefindthatit is reasonable to allow Cal-Am to recover the amountrecorded in the memorandum account. Wewill also require that the account beclosed in 60 days to bring the unique circumstancesto an end. The Monterey Peninsula Water ManagementDistrict User Fee Memorandum shallclose 60 daysafter the effective date of this order. Cal-Am is authorizedto file a Tier 2 advice letter to amortize the amounts recordedin that account over 12 months with interest to be calculated based on the 90-day commercial paperrate. Comments on Proposed Decision The proposed decision of the Administrative Law Judge (ALJ) in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission’s Rules of Practice and Procedure. Cal-Am, DRA, and the District filed comments in opposition to the proposed decision on January 10, 2011. In its comments on the proposed decision, Cal-Am disavowedall responsibility for the District’s Carmel River mitigation and Aquifer Storage programs and contendedthat these were “local government programs funded by a utility users’ tax.”Specifically, Cal-Am stated that the proposed decision is premised on a “factual error” in accepting that the District’s mitigation and -18 - A.10-01-012 ALJ/MAB/jyc aquifer storage programs are Cal-Am obligations with no evidence to support that conclusion.”5 Instead, Cal-Am explainedthat as a result of the meet and confer process ordered in D.09-07-021, the parties reached “agreement between the Companyand[the District] (and ultimately DRA)that neither the Mitigation Program nor[the District's] [aquifer storage project] activities were California American Water's responsibility.” The District, however, took the opposite position and, citing to Cal-Am’s application, explained that “[b]y its Application, [Cal-Am] seeks authorization to collect funds required by the Water ManagementDistrict to carry out projects on behalf of [Cal-Am], and which [Cal-Am] is mandated to carry out.” DRA agreed with Cal-Am.% The parties showeda similar divergence of opinion on the exact nature of the fee, Cal-Am declared that the District’s user fee “is a utility user tax” within the meaning of D.89-05-063 and that the Commission hasnojurisdiction to determinethe validity of such taxes.29 DRAandthe District were more circumspect and contended that the “Commission has limited authority to question a local government agency’s 24 Cal-Am Comments at 12. 2 Id. 6 Id. at 11, but see, Applicationat 5, “In this application, California American Water - with the support of MPWMD- describes the user fee as the appropriate means to fund projects (i.e., the Aquifer Storage and Recovery Program and Mitigation Program) currently performed by the District but properly or ultimately the responsibility of the Company.” 27 District Commentsat7. 22 DRA Comments at 2. 29 Cal-Am Commentsat 12 -13. -19- A.10-01-012 ALJ/MAB/jyc collection of a fee or tax,” without specifying the precise legal nature of the District’s user fee.3° The District carefully stated that (1) it was “a government agency,” (2) it has the authority to “impose taxes, fees, and other assessments,” and(3) “the Commission lacks authority to contest the District’s lawful exercise of its authority.”! In contrast to Cal-Am,the District did not argue specifically that the user fee wasa utility user tax or that the District was authorized by the Legislature to levy such tax. All parties agreed that the proposed decision was prematurein dismissing the application without further proceedingsafter rejecting the settlement. Asset forth above, the proposed decision has been modified to authorize Cal-Am to amendits application. Assignmentof Proceeding Michael R. Peeveyis the assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding. Findings of Fact 1. Cal-Am must implementall measuresin the “Mitigation Program for the District’s Water Allocation Program Environmental Impact Report” not implemented by the ManagementDistrict. 2. The Mitigation Program for the District’s Water Allocation Program Environmental Impact Report is comprised of mitigation measures for fisheries, riparian vegetation and wildlife, and lagoon vegetation and wildlife. 30 District Comments at 5; DRA Commentsat 2. 31 District Commentsat 6. -20 - A.10-01-012 ALJ/MAB/jyc 3. The ManagementDistrict's 2007-2008 AnnualReportfor the Mitigation Program showsthat the ManagementDistrict allocated nearly $1 million of costs of its new office building to the Mitigation Program. 4, The ManagementDistrict’s 2007-2008 Annual Reportfor the Mitigation Program showsthe Aquifer Storage and Recovery Project as a componentof the user fee Mitigation Program costs andalso as a stand-alone additional userfee. 5. Cal-Am is actively pursuing water supply augmentation throughits Coastal Water Project and the ManagementDistrict need not act on Cal-Am’s behalf. 6. The rebate program,salaries for the Conservation Office Staff and project expenditures for ordinance enforcementare bookedas part of the Mitigation Program, even thoughsuchcosts are not included in the ManagementDistrict's 2007-2008 AnnualReport for the Mitigation Program. The ManagementDistrict did not explain whether these bookedcosts are included in the user fee even though the Commission has approved andseparately fundeda joint conservation program with the ManagementDistrict which may include some of the samecosts. 7. The testimony supporting the application shows accounting treatment inconsistent with Commission ratemaking standards. 8. The user fee and Carmel River mitigation program have a uniquehistory, including particularly that the funds have been remitted to a government agency, that render reasonable Cal-Am’s request to recover the amounts recorded in the account. Conclusions of Law 1. The testimony supporting the application should be received into evidence. -21- A.10-01-012 ALJ/MAB/jyc 2. The settlement agreementis not reasonable in lightof the record, consistent with the law,or in the public interest. 3. The settlement agreement should not be approved. 4. California American Water Companyshould be authorized to amendthis application within 60 daysofthe effective date of today’s decision byfiling and serving one of the following; A. Joint program proposalfor the District to perform the Carmel River Mitigation measures based on an updatedversion of the budgetset out in Attachment1, and to fundthe District's portion of the Aquifer Storage and Recovery Project, or B. Implementation plan for Cal-Am to assumedirect responsibility for the Carmel River Mitigation measures, should the District cease to fund the measures. The Monterey Peninsula Water ManagementDistrict User Fee Memorandumshould close 60 daysafter the effective date of this order. Cal-Am should be authorizedtofile a Tier 2 advice letter to amortize the amounts recorded in that account over 12 months with interest to be calculated based on the 90-day commercial paper rate. 5. Pub. Util. Code § 451 requires all chargesor rules pertaining to charges demandedorreceived by a public utility to be just and reasonable. -22- A.10-01-012 ALJ/MAB/jyc ORDER IT IS ORDEREDthat: 1. The motion to approvethe settlement agreement among California- American Water Company, the Monterey Peninsula Water ManagementDistrict and the Division of Ratepayer Advocatesis denied. 2, California American Water Companyis authorized to amend Application 10-01-012 within 60 days of the effective date of this order byfiling and serving oneof the following: A. Joint program proposalfor the Monterey Peninsula Water Management District to perform the Carmel River Mitigation measures based on an updated version of the budget set out in Attachment1, and to fund the Monterey Peninsula Water ManagementDistrict’s portion of the Aquifer Storage and Recovery Project, or B. Implementation plan for California-American Water Companyto assumedirect responsibility for the Carmel River Mitigation measures, should the Monterey Peninsula Water ManagementDistrict cease to fund the measures. Absent such an amendment, the Executive Director is authorized to dismissthis application without prejudice to refiling. 3. The Monterey Peninsula Water ManagementDistrict User Fee Memorandum Accountshail close 60 daysafter the effective date of this order. California-American Water Companyis authorizedtofile a Tier 2 advice letter to amortize the amounts recorded in that account over 12 months with interest to be calculated based on the 90-day commercial paperrate. 4. The testimony submitted in supportof the application is received into evidence. This orderis effective today. Dated March24, 2011, at San Francisco, California. -23- A.10-01-012 ALJ/MAB/jyc MICHAEL R. PEEVEY President TIMOTHY ALAN SIMON MICHEL PETER FLORIO CATHERINEJ.K. SANDOVAL MARK FERRON Commissioners - 24 - L/cdl Date of Issuance January 25, 2013 Decision 13-01-040 January 24, 2013 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA In the Matter of the Application of California-American Water Company (U210W) for an Order Authorizing the Application 10-01-012 Collection and Remittance of the Monterey (Filed January 5, 2010) Peninsula Water ManagementDistrict User Fee. ORDER MODIFYING DECISION(D.) 11-03-035 AND DENYING REHEARING, AS MODIFIED I. INTRODUCTION In this Order, we dispose of the application for rehearing of Decision (D.) 11-03-035 (or “Decision”filed by the Monterey Peninsula Water Management District (“the District” or “MPWMD”). For several years California-American Water Company (“Cal-Am’’) has diverted water from the Carmel River to help provide adequate water supplyto its Monterey Peninsula customers. In 1995, the State Water Resources Control Board (“SWRCB”) determined that Cal-Am hasnolegal right to that water, and that its actions were adversely affecting public trust resources within the river.1. Accordingly, Cal-Am was orderedto cease and desist the water diversions,? and remediate river impacts by implementing a Mitigation Program and Aquifer Storage and Recovery Program (“ASR 4 See e.g., SWRCB Order No. WR 95-10 (“Order 95-10”), dated July 6, 1995, at pp. ii, 39 [Conclusion Numbers 2 & 3], & p. 40 [Ordering Paragraph Number 2]. 2 Order 95-10, at p. 40 [Ordering Paragraph Number1]. 40647695 1 A.10-01-012 Liedl Program”). Although Cal-Amis legally responsible for the programs,! the District currently performs most of the program functions andit hashistorically collected its costs to do so via a User Feethat is recovered from Cal-Am’sratepayers. On January 5, 2010, Cal-Am filed an application seeking authorization for collection and remittance of the District’s current proposed User Fee.2 Subsequently, on May18, 2010, Cal-Am,the District, and the Division of Ratepayer Advocates (“DRA”) filed a proposed settlement.£ Both the application and settlement proposed approvalof a User Fee set at 8.325% of Cal-Am’stotal revenues, approximately $3.5 million.2 In reviewing the application and settlement, we were guided by D.09-07-021.2 (D.11-03-035,at pp. 1-4, 11-17.) That decision had also considered the District’s proposed User Fee, and deferred approvalciting concernsincluding: a lack of evidence explaining program costs;2 the District’s choice to set the User Fee as a percent of Cal-Am’s revenue (8.325%) rather than using a cost-based methodology; and the * Order 95-10, at pp. 30-32, 39 [Ordering Paragraph Number3]. See also, SWRCB Order No. WR 2009-0060 (“Order 2009-0060”) at pp. 118-120 [Ordering Paragraph Number 3(c)]; and Application of California-American Water Companyfor Authorization to Increase its Revenues for Water Service inits Monterey District by $24,718,200 or 80.30% in the Year 2009; $6,503,900 or 11.72% in the Year 2010; and $7,598,300 or 12.25% in the Year 2011 Under the Current Rate Design andto Increase its Revenues for Water Service in the Toro Service Area ofits Monterey District by $354,324 or 114.97% in the Year 2009; $25,000 or 3.77% in the Year 2010, and $46,500 or 6.76% in the Year 2011 Under the Current Rate Design [D.09-07-021] (2009) ___ Cal.P.U.C.3d _, at pp. 116-118 (slip op.). 4 Order 95-10, at p. 43 [Ordering Paragraph Number11]. = See In the Matter of the Application of California-American Water Companyfor an Order Authorizing the Collection and Remittance of the Monterey Peninsula Water ManagementDistrict User Fee, dated January 5, 2010 (“Cal-Am Application”). £ Motion to Approve Settlement Agreement Between the Division of Ratepayer Advocates, the Monterey Peninsula Water ManagementDistrict and California-American Water Company (“Motion to Approve Settlement Agreement”), filed May 18, 2010. 1 The 8.325% User Fee would besplit as 7.125% for the Mitigation Program and 1.2% for the ASR Program. (D.11-03-035, at pp. 1-3; MPWMD/Dickhaut, at p. 4.) Cal-Am’s current test year 2009 operating revenues are approximately $42 million, resulting in the total User Fee charge of approximately $3.5 million. (D.11-03-035, at p. 3; MPWMD/Dickhaut,at p. 6.) ® 1).09-07-021, supra, at pp. 116-123 (slip op.). ? D.09-07-021, supra,at p. 120 (slip op). 40547695 2 A.10-01-012 Lied] increase in costs over past User Fee levels.¥2 Accordingly, in D.09-07-021, we directed the parties to provide evidence to support the proposed UserFee in this proceeding.4 Despite expressing support for the User Fee programs, the Decision challenged here foundthat the application and proposed settlementstill failed to adequately justify the proposed costs. Accordingly, we authorized Cal-Am to amendits application to submit either: (1) a joint program proposal based on an updated version of the budget; or (2) an implementation plan for Cal-Am to assumedirect responsibility for program measures should the District cease to perform program activities. (D.11-03-035 at pp. 11-17, 22 [Conclusion of Law Numbers 3 & 4]; & p. 23 [Ordering Paragraph Number 2].) 2 The District filed a timely application for rehearing, challenging the Decision on the groundsthat the Commission: (1) unlawfully interfered with the District’s statutory authority to impose a User Fee; (2) failed to adhere to established procedural requirements;(2) failed to provide adequate findings of fact and conclusions of law onall material issues pursuant Public Utilities Code Section 1705,” (3) failed to support its findings with sufficient evidence; and (5) failed to adequately weigh the evidence. No responses werefiled. We havecarefully considered the arguments raised in the application for rehearing and are of the opinion that while the Decision is lawful, it would benefit from modifications to more closely conform the formal findings of fact and conclusions of law with the Decision text. We will modify the Decision as set forth in the Ordering Paragraphs below. However, good cause hasnot been established to grant rehearing. Accordingly, we deny the application for rehearing of D.11-03-035, as modified herein, because no legal error has been shown. 1° 1D.09-07-021, supra, at pp. 120-121 (slip op.). “ D.09-07-021, supra, at pp. 119-123 (slip op.). 1% All subsequentsection references are to the Public Utilities Code, unless otherwisestated. 40547695 3 A.10-01-012 Lied] II. DISCUSSION A. Alleged Interference with the District’s Collection of the User Fee 1. District Authority The District states it has independent and express statutory authority to set and collect a User Fee under the Monterey Peninsula Water ManagementDistrict Law (“District Law”). Pursuantto that authority, the District argues it may fix rates and chargesforits services,“ and collect those chargesvia public utility bills The District reasonsthat rejection of the settlement unlawfully interfered with its authority to collect a User Fee because Commissionjurisdiction extends only to the regulation of investor- ownedpublic utilities. (Rhg. App., at pp. 13-17, citing Los Angeles Metropolitan Transit Authority v. Public Utilities Commission (1959) 52 Cal.2d 655, 661; County ofInyov. Public Utilities Commission (1980) 26 Cal.3d 154, 167; Santa Clara Valley Transportation Authority v. Public Utilities Commission (2004) 124 Cal.App.4" 346, 356, 364.)8 2 See District Law (Cal. Water Code Appendix, Chapter 118-1 to 118-901 (Stats. 1977, ch. 527.). See e.g., Sections 118-325. See also D.09-07-021, at p. 117 (slip op.). The District’s purpose is generally to conserve and augment peninsula water supply, control and conserve storm and waste water, and promote the reuse and reclamation of water. (See e.g., D.09-07-021, supra, at p. 117 (slip op.).) # District Law, Section 118-326(b) stating: Sec. 326. The district shall have the power: (b) To fix, revise, and collect rates and charges for the services, facilities, or water furnished byit. 48 District Law, Section 1 18-326(d) stating: Sec. 326. The district shall have the power: (d) To provide that charges for any ofits services or facilities may be collected together with, and not separately from, the charges for other services or facilities rendered byit, or it may contract thatall such charges be collected by any other private or public utility, and that such charges be billed upon the samebill and collected as one item. 18 Also citing Sullivan v. Delta Airlines (1997) 15 Cal.4" 288, fn. 9; and PG&E Corporation v. Public Utilities Commission (“PG&E Corp.”) (2004) 118 Cal.App.4" 1174, 1194-1195. Theprinciples referenced in these cases are valid. However, as explained herein, we did not attemptto assert jurisdiction over the District. 40547695 4 A.10-01-012 Licdi The District’s claim is premised on the notion that the Decision asserted jurisdiction overthe District. It did not. Nor did the Decision contest or negate any lawful authority the District may have to impose a UserFee that would be collected by Cal-Am from theutility’s customers. This Commission has consistently held thatit will not pass judgment onthe authority of any local entity to impose taxes, fees or charges on utilities or their customers.” We recognize that local taxing authority is properly the domainofthe Superior Court. Thus, for purposes of D.11-03-035, we presumedthe District’s authority is sound. Thatsaid,it is within our jurisdiction to protect the public interest in matters pertainingto utility regulation. That jurisdiction includes exclusive authority overpublic utility rates and cost recovery,” andthe duty to ensure thoserates and costs are just, reasonable, and nondiscriminatory.“ Because Cal-Am would be recovering the proposed UserFee from its customers, it was within the Commission’s jurisdiction and responsibility to review the proposed UserFeecosts. Even the District concedes this point, stating: “[T]he Commission may ensure that Cal-Am is not charging ‘unreasonable’ rates by insuring that Cal-Am is not " The District argues: “the net effect of the revised PD [Decision] was to leave MPWMDwithout a practical meansof collecting its User Fee...” (Rhg. App., at p. 11.) That is not correct. As evidenced by its passage of local Ordinance Number 152 on June 27, 2012,the District does have an independent meansof collecting a User Fee. (See Ordinance No. 152, Exhibit 4-A, located at: http://www.mpwmd,dst.ca.us/asd/board/boardpacket/2012/20120627/04/item4.htm), * See e.g., Packard. v. PG&E Co. {D.77800] (1970) 71 Cal.P.U.C. 469, 472; Re Guidelinesfor the Equitable Treatment ofRevenue-Producing Mechanisms Imposed by Local Government Entities on Public Utilities [D.89-05-063] (1989) 32 Cal.P.U.C.2d 60, 69 [“This Commission does not dispute the authority or right of any local governmententity to impose or levy any form oftax or fee uponutility customersorthe utility itself, which that local entity, as a matter of general law orjudicial decision, has jurisdiction to impose....” ], & pp. 71-72 [Findings of Fact Numbers 9 & 10].) ® 1.77800, supra, 71 Cal.P.U.C.at p. 472; D.89-05-063, supra, 32 Cal.P.U.C.2d at p. 69. The District’s authority to collect the User Fee at issue in this proceedingis currently a question before the Superior Court. (See California-American Water Company v. Monterey Peninsula Water ManagementDistrict, Monterey Superior Court Case No. M113336.) , ° Cal. Const., art. XII, §§ 1-6. See also Consumers Lobby Against Monopolies v. Public Utilities Commission (“CLAM”) (1979) 25 Cal.3d 891, 905-906. 21 1) 89-05-063, supra, 32 Cal.P.U.C.2d at pp. 69, 71-72. 40547695 5 A.10-01-012 Liedl recovering . . . costs borne not by Cal-Am but by MPWMD (andfunded through the User Fee).” (Rhg. App., at p. 17.) For these reasons, it was a legitimate exercise of our authority to review the proposed User Fee and determine whether the evidence was sufficient to establish the proposed costs were reasonable. 2. Conflict of Law The District contends that a conflict of law and authority would arise here “ifthe Commission purports to pass on the wisdom ofits [the District’s] expenditures.” In that event, the District asserts that statutory interpretation principles establish thatits authority under the later enacted and more specific District Law, would prevail. (Rhg. App., at pp. 17-20, citing Orange County Air Pollution District v. Public Utilities Commission (“Orange County”) (1971) 4 Cal.3d 945, 954, fn. 8; People ex rel. Public Utilities Commission v. City ofFresno (“City ofFresno”) (1967) 254 Cal.App.2d 76.) This issue is moot because asthe District itself acknowledges,there is no actualstatutory conflict in this case. (Rhg, App., at p. 17.) The District merely speculates that the Decision couldbe interpreted to reject outright the amountof the User # The District contends we should have presumed the proposed User Fee costs were reasonable because its budget is subject to a local public process. In addition, the District argues the Decision failed to identify Commission ratemaking requirements. (Rhg. App., at p. 18, fn. 67.) Our statutory obligation to ensure utility rates and cost recovery are just and reasonableis independentofany public notice and/or vetting process the District may have to follow. Further, the fundamental ratemaking requirement applicableto utility rates and charges is long-standing andwell established. Authorized rates and charges must be demonstrably based onthe actualcost of service. (See e.g., Southern California Gas Company v. Public Utilities Commission (1979) 23 Cal.3d 470, 474-475, 476-478; City and County ofSan Francisco v. Public Utilities Commission (1971) 6 Cal.3d 119, 129.) 2 The Public Utilities Code was first enacted in 191 1, and later recodified in 1951 (Stats. 1951, ch. 764.) The District Law was enacted in 1967. 40547695 6 A.10-01-012 Liedl Fee, and/or a percent of revenue versus cost-based methodology. Butit did not. The Decision merely found the evidence was not adequate to resolve theissues raised in D.09-07-021 and showthat the proposed costs were reasonable.#4 3. Commission Precedent The District contends the Decision ran counter to established Commission precedent, which recognizes that the Commission cannotinterfere with a local entity’s authority to collect taxes, fees, and charges. (Rhg. App., at pp. 20-22,citing e.g., D.77800, supra, 71 Cal.P.U.C.at pp. 469 & 472) Aside from the District’s incorrect jurisdictional claim,it goes on to suggest it has authority under the District Law and Proposition 218 to impose charges and fees using any methodit chooses, andregardless of cost. However, the District points to nothing in the District Law that confers such unfettered authority. Moreover, Proposition 218 somewhat limits local governmenttaxation by requiring voter approvalto impose, extend,or increase taxes.“ The law also contemplatesthat fee calculation methodologies chosen bylocal entities may be limited orrestricted by other relevantstate, federal, or local laws. Finally, the District suggests that even if there are duplicative costs as between Cal-Am andthe District, our only recourse is to adjust Cal-Am’sportion of approved rates. (Rhg. App., at p. 21.) The limitation the District suggests would mean that the Commission could only adjust Cal-Am’s costs, even if were District’s costs that were found to be unreasonable. Such a position cannot be reconciled with the District’s 24 The District also argues Commission authority to review third party charges onutility bills must be expressly granted by the Legislature. (Rhg. App., at p. 19, citing Section 2889.9(b).) Section 2889.9(b) offers no guidance here. Thecited statute applies only to the authority to impose penalties in connection withthird party billing of telephone customer/subscriberservices. It has no bearing on our authority under Section 451. 8 Proposition 218 amended Government Code Section 53750. 28 4B Cellular LA, LLCv. City ofLos Angeles (2007) 150 Cal.App.4" 747, 755-756, 760.) 22 Id, at pp. 763-764. 40547695 7 A.10-01-012 Licdl own admission that we have a statutory duty to ensure Cal-Am’s rates (including the User Fee), are just and reasonable, and it would runafoulof ourstatutory obligations. B. Procedural Requirements The District contends the Decision failed to follow relevant procedural statutes and rules regarding: (1) scoping memos; (2) prehearing conferences; (3) the disposition of settlement agreements; (4) dismissal of motions/applications; (5) final oral arguments; (6) evidentiary hearings; and (7) the submission of proceedings. As discussed below,these allegations of error are without merit. 1. Scoping Memo The District contends the Commission failed to issue a scoping memo as required under Section 1701.1(b) and Commission Rule of Practice and Procedure 7.3. (Rhg. App., at pp. 22-23.) Section 1701.1(b) and Rule 7.3 state in relevant part that an assigned Commissioner for a proceeding shall prepare a scoping memo“that describes the issues to be considered.” The District’s reliance on section 1701.1(b) and Rule 7.3 is misplaced because no scoping memo wasrequired in this instance. A key purposeof a scoping memois to provide notice of the issues to be considered. The District claims the lack of scoping memointhis case deprivedit of proper notice of the issues to be considered. That argumentfails because Cal-Am’sinitial application was merely a 134compliance filing ordered by D.09-07-02 That decision had already clearly identified the issues to be considered,andit identified the type of evidence the Commission required.” In addition,the parties (including the District), acknowledged their filings 28 1),09-07-021, supra, at pp. 116-117, 151 {Conclusion of Law Numbers 48 & 49], & pp. 56-57 {Ordering Paragraph Numbers 24 & 25](slip op.). See also, Cal-Am Application, dated January 5, 2010, at p. 1; and Motion to Approve Settlement,filed May 18, 2010, at pp. 2-3. » 1).09-07-021, supra, at pp. 119-123 (slip op.). 40547695 8 A.10-01-012 Licdl were made in compliance with D.09-07-021.22 Thus,there is no credible claim that a scoping memo wasneededin order for the District to have notice regardingtheissues to be considered. The District similarly claimsit was not afforded an opportunity to address or provide evidence concerningthe relevant issues. (Rhg. App., at p. 23.) For the reasons discussed above, this argument is without merit. Further, the parties did in fact submit evidence intended to address the issues raised in D.09-07-021 and considered in this proceeding.* That the District did not expect that its evidence would be found lacking does not meanit had no notice and opportunity to address the relevantissues. The District next suggests it was entitled to, and deprived of, an opportunity to submitbriefs regarding the dispositive issues. (Rhg. App., at p. 24.) No authority provides such an entitlement. The only Commission rule regarding briefs is Rule 13.11, whichstates in pertinent part: “[T]he Administrative Law Judgeorpresidingofficer, as applicable, ‘may fix the timefor filing briefs.’” This languageis arguably permissive, andestablishes no set requirementor entitlement for briefing. Further, as a practical matter briefs are generally useful only *° Cal-Am Application, dated January 5, 2010, at p. 1; and Motion to Approve Settlement, filed May 18, 2010, at pp. 2-3. + The District also claims rehearing is warranted here for the same reasons rehearing was granted in D.11-01-029. (Rhg. App., at p. 25, fn. 92, citing Application ofCalifornia Water Service Company, a California Corporation, for Authorization (i) to Require the Current or Future Owners ofthe Parcels Known as the “Trend Homes Properties” to Pay a $40,000 Developer Contribution; and(ii) to Reimburse Dwight Nelson with that $40,000 Payment [D.11-01-029] (2011) _ Cal.P.U.C.3d _) D.11-01-029 is not analogous. There, rehearing was warranted because the decision resolved an issue not previously identified for resolution. Thus, parties had no opportunity to commentprior to the proposed decision. The District did have notice of the issues to be addressed here and the District availed itself of the opportunity to do so. 2 See e.g., MPWMD/Christensen; MPWMD/Urquhart; MPWMD/Prasad; MPWMD/Oliver; MPWMD/Hampson; MPWMD/Fuerst; Cal-Am/Stephenson; Cal-Am/Kilpatrick; Cal-Am/Schubert; and MPWMD)/Dickhaut. 3 The District asserts: “one presumesthat in enacting SB 960, the Legislature expected the Commission to ask for briefing” beforeit acted in a matter. (Rhg. App., at p. 23, fn. 86.) Nothing in SB 960 (Stats. 1995, ch. 856) supports such a conclusion. TheBill clearly states that the Legislature’s intent was merely to enhance Commissioner involvement in proceedings, and establish reasonable time frames for proceedings to be completed. (SB 960, Section 1.) The Bill is silent regarding briefs. 40547695 9 A.10-01-012 Licdl whenpoints of law are dispositive. Here, the dispositive issues were evidentiary in nature. Finally, the District wrongly argues that Southern California Edison Company v. Public Utilities Commission (“Edison v. PUC”) (2006) 140 Cal.App.4™ 1085 applies here to show that a scoping memo wasrequired. (Rhg. App., at pp. 24-25.). Theissue in Edison v. PUC wasthatparties had been prejudiced by a decision which resolved an issue that was no includedin the scoping memo,andthus, the parties had no notice that the issue would be decided. No similar violation occurred here because the parties did have adequate notice of the issues to be decided. 2. Prehearing Conference The District contends the Commission failed to conduct a prehearing conference (“PHC”) as required by Section 1701.1(b) and Rule 7.2. (Rhg. App., at pp. 25-27.) Section 1701.1 states in relevantpart that “upon initiating a hearing...the assigned commissionershall schedule a prehearing conference....” Rule 7.2 similarly states that: “[I]n any proceeding in whichit is preliminarily determinedthat a hearing is needed, the assigned Commissionershail set a prehearing conference....the [prehearing conference] statements may address the issues to be considered....” These provisions do contemplate that PHC’s are generally required. However,like a scoping memo, a PHCservesprimarily to identify the issues to be considered. As discussed above, that was not necessary in this case. The District’s sole argumentis that because there was no PHC,it was “left guessing" regarding the issues to be considered. T[hat claim is plainly without merit. 3. Disposition of Settlement Agreements The District contends the Decision is unlawful because in rejecting the settlement, the Commissionfailed to propose an alternative enumerated under Rule 12.4. (Rhg. App., at pp. 27-28.) This argument is without merit. 40547695 10 A.10-01-012 Licdl Rule 12.4 providesthat if the Commission determines that a proposed settlementis not in the public interest, it may reject the settlement andit also “may take various steps, including”to hold hearings,allow the parties time to renegotiate the settlement, or propose alternative terms to the parties to the settlement which are acceptable to the Commission. Our Decision found that the proposed settlement wasnot in the public interest. (D.11-03-035, at pp. 15, 22 [Conclusion of Law Number 2].) Rather than choose an alternative under Rule 12.4, we determined it would be more useful to authorize Cal-Am to amendits application to provide specific information suited to moving forward in this matter. (D.11-03-035, at pp. 17, 23 [Ordering Paragraph Number 2].) That direction was both lawful and reasonable. The plain language Rule 12.4 states only that the alternatives specifically listed are steps the Commission “may” take. The languageis discretionary and affords the Commission flexibility to devise any other alternatives that are deemed appropriate. Andthatis all the Decision did. 4. Dismissal The District contends the Decision failed to follow precedent regarding the handling of motions to dismiss pursuant to Code of Civil Procedure (“CCP”) Section 437c. (Rhg. App., at pp. 28-31.) Section 437c governs motions for summary judgmentin civil court. CCP Section 437c is not controlling in Commission proceedings, except that the Commission can look to the statute as guidance. Furthermore, the statute is not applicable or relevant since even the District concedes, no motion for summary judgment wasfiled in this proceeding. Even if such a motion hadbeen filed, summary judgments are only relevant where the contested matter turns on questions of law rather than questions of *4 The Commission’s rules also provide for motions to dismiss a proceeding based on the pleadings. (Rule 11.2; Cal. Code of Regs., tit. 20, § 11.2.) However, no party filed such a motion in this proceeding. 40547695 11 A.10-01-012 Licdl fact= The dispositive issues in this proceeding did not involve questions of law. Thus, the referenced procedureis simply not relevant. In addition, the District’s argument is based on speculation that we may have believed no facts were at issue, and so dismissed the matter “sua sponte.” Speculation concerning ourbelief or intent does notestablish legalerror. The District also wrongly argues the matter was dismissed without explanation. As discussed herein, the Decision did explain why the application and proposed settlement were deemed inadequate. Thus, the Decision gave Cal-Am leave to amendits application. (D.11-03-035, at pp. 10-17, 23 [Ordering Paragraph Number2].) Should Cal-Am decline to do that, the Decision stated that then the matter may be dismissed. The District fails to establish that dismissal at that juncture would be either inappropriate or unlawfulin that event. (D.11-03-035, at p. 23 [Ordering Paragraph Number2].) Second, as discussed in part II.C. below, the Decision did explain whyit was reasonable and necessary to reject the proposed settlementin this proceeding. 5. Oral Arguments The District contends the Commission failed to hold final oral arguments as required by Rule 13.13 and Section 1701.3. (Rhg. App., at pp. 25, fn. 93, 31-33.) Rule 13.13(a) providesin relevant part that “[T]he Commission may, onits own motionor upon recommendation of the assigned Commissioner or Administrative Law Judge, direct the presentation of oral argumentbefore it. Rule 13.13(b) goes on to state that in a ratesetting or quasi-legislative proceeding “in which hearings were held, a party has the right to makea final oral argument before the Commission,if the party so requests...” Rule 13.13 established no right to oral argumentin this proceeding. The plain language of subdivision(a) is clearly discretionary. And subdivision (b) 8 See e.g., Crocker National Bank v. City and County ofSan Francisco (1989) 49 Cal.3d 881, 889; Omniphone, Inc. v. Pacific Bell [D.91-10-040] (1991) 41 Cal.P.U.C.2d 495, 496. 40547695 12 A.10-01-012 L/cdl contemplates oral arguments only when oneis requested by a party. No timely request was madein this proceeding. Section 1701.3 similarly provides that if the Commission has determined an evidentiary hearing is required, a party has a right to an oral argumentif requested. No party timely requested oral argumentin this matter. Thus, the circumstances contemplated by the statute never occurred here. 6. Evidentiary Hearings The District contends it was prejudiced by failure to hold evidentiary hearings, whichit argues deprived it of the opportunity to “clarify and amplify”its position on the relevant issues. (Rhg. App., at pp. 33-36.) Noruleor statute requires the Commission to hold an evidentiary hearing. The District merely reargues evidence submitted in this proceeding in an attemptto achieve a different outcome. Rehearingis not afforded as an opportunity for a party to reargue the evidence or so that the Commission might reweigh the evidence. Rehearing applications are limited by Section 1732 to specifications of legal error, and the District identifies none.*® Further, even if we could have conducted such hearings on the proposed settlement, nothing suggests they would haveresulted in any different outcome. The Decision determined that the record evidence was simply inadequate to support the requested costs or resolve the concernsraised in D.09-07-021. Evidentiary hearings to “clarify and amplify” what was deficient is not a substitute for the additional evidence deemed necessary to resolve this matter. And case law supports a conclusion that hearingsare not required in such circumstances.~ © Pub. Util. Code, § 1732. *1 See e.g., Georgia Pacific Corporation v. United States EnvironmentalProtection Agency (1982) 671 F.2d 1235, 1241. 40547695 13 A.10-01-012 Liedl 7. Submission of Proceedings The District contends the proceeding wasnot “submitted for decision” as required by 13.14.% (Rhg. App.,at p. 37.) Rule 13.14 providesin relevant part that “[A] proceeding shall stand submitted for decision by the Commissionafter the taking of evidence,thefiling of briefs, and the presentation of oral argument as may have beenprescribed.” The District contends this proceeding was never properly submitted because there was no taking of evidence,filing of briefs, or presentation oforal argument. However, the occurrence of those actions is not required for a matter to be submitted. The plain language of the Rule merely states that those actions “may” have taken place and would naturally precede submission ofa case. Further,it is not unusual that after filing of a settlement, the Commission directly proceedsto issue its decision. Submission of a settlement may itself effectively act to submit the matter for decision. Here, we properly accepted the parties’ evidence in order to render our determination. (D.11-03-035,at p. 23 [Ordering Paragraph Number4].It wasalso not unlawful, as the District suggests, that it was not explicitly notified the matter was submitted. There is no legal requirement for such notice and the Commission does not issue such notifications. C. Findings of Fact and Conclusions of Law The District contends the Decision:(1) it failed to provide adequate findings of fact and conclusionsof law onall material issues as required by Section 1705; 38 See also Pub. Util. Code, § 311, subd. (d) [Requiring, among other things, that a matter be “submitted for decision” before a proposed decisionis issued.]. * The District argues when noevidentiary hearings occur, a motion is required to admit prepared testimony andthe rules do not provide any other means to take evidence other than at such hearings. It appears to suggest no such motion wasfiled here. (Rhg. App., at p. 37, fn. 123, citing Rule 13.8(d).) However, the Motion to Approve Settlement did request that the Commission introduce into the record all the evidence that was offered by the parties. (Motion to Approve Settlement, dated May 18, 2010, at p. 2.) And even if no motion had been filed, nothing precludes the Commission from accepting evidence of its own accord. 40547695 14 A.10-01-012 Liedl and(2) failed to set forth adequate findings to explain the outcome. (Rhg. App., at pp. 38-44.) 1. Section 1705 Section 1705 requires that a Commission decision contain separately stated findings of fact and conclusionsof law onall issues material to the decision. Relevant case law also provides that a decision must: [A]fford a rational basis for judicial review andassist the reviewing court to ascertain the principles relied upon by the commission and to determine whetherit acted arbitrarily, as well as assist the parties to know whythe case waslost and to prepare for rehearing or review,assist others planning activities involving similar questions, and to service to help the commission avoid carelessor arbitrary action. (Greyhound Lines, Inc. v. Public Utilities Commission (1967) 65 Cal.2dd 811, 813.)}4 The District argues the Decision failed to meet this standard becauseit failed to address or explain the Commission’s legal authority (under Section 451) to prevent the District collecting a User Feeit is otherwise authorized to assess under the District Law. (Rhg. App., at p. 40.) The District again misreads the Decision. It did not challenge or negate the District’s statutory authority to assess and collect a User Fee. The Decision did not address that question at all. As discussed above, the Commission presumeslocal entities such asthe District have such authority. Thus, it was not a material issue which required # Pub. Util. Code, § 1705, stating in relevant part: “...the decision shall contain, separately stated, findings of fact and conclusions of law by the commission onall issues material to the order or decision.” 4! See also California MotorTiransport Company v. Public Utilities Commission (1963) 59 Cal.2d 270, 274-275. ® Similarly, the District contends the findings did not explain why restricting its authority was required to avoid a double collection of revenues. (Rhg. App., at p. 41.) The Decision did notrestrict the District’s authority. However, the Decision did reasonably explain that Section 451 requires all rates and charges received by a publicutility to be just and reasonable. (D.11-03-035,at p. 14, fn. 20.) Because the User Fee was to be recovered from Cal-Am’s ratepayers, those costs were inescapably subject to the just and reasonable requirement. Any duplication of costs leading to a double collection of revenues would quite obviously be unreasonable, contrary to, and impermissible under Section 451. 40547695 15 A.10-01-012 Licdl any explanation, finding or conclusion pursuant to Section 1705. The issue does not now become material becausethe District claims it was. Consistent with the requisite legal standard, the Decision properly identified the material issues necessary to resolve this matter (D.11-03-035, at pp. 1-4), and it explained the relevant criteria for evaluating settlement agreements. (D.11-03-035, at pp. 10-11.) The Decision also provided a rational basis for rejecting the proposed settlement. In particular, it explained the following evidentiary deficiencies and findings: e a lack of identifiable ratemaking or programmatic limitations on User Fee costs, raising cost-effectiveness issues (D.11-03-035, at pp. 11-12.); e no explanation of, or cost justification for, the substantial increase in annual UserFee costs since 2006 (D.11-03-035,at p. 12.); e possible duplication of activities and costs as between Cal-Am and the District (D.11-03-035, at pp. 12-13.); e no explanation for how endangeredspecies costs (steelhead) are divided between the relevant agencies, and no evidence to show how Cal-Amis managing those costs for ratepayers (D.11-03-035,at p. 13.); ¢ no cost justification for certain components of the User Fee (D.11-03-035, at p. 14.); e no explanation or evidence to show whya percent of revenue derived fee is morecost-effective than a cost-based fee (D.11-03-035,at pp. 11-12.) The District may disagree with these findings and conclusions. However, disagreementdoesnot establish legal error. The findings were sufficient to reasonably apprise a reviewing Court and the parties ofthe principles we relied upon in reaching our determination. ® Eventhe District concedes the Commission hasdiscretion to determine whatissues are material to a decision. (See also, City ofLos Angeles v. Public Utilities Commission (1972) 7 Cal.3d 331, 337.) “4 See also D.11-03-035,at p. 21 [Finding of Fact Numbers 6 & 7], & p. 22 [Conclusion of Law Number2]. 48 Southern California Edison Company v. Public Utilities Commission (2005) 128 Cal.App.4" 1, 8. 40547695 16 A.10-01-012 Licdl Thatsaid, the relevant findings in this proceeding were mainly discussed in the Decision's text. However, for purpose ofprecision andclarity, we will modify the formal findings of fact and conclusions to more closely mirror the Decision text. The modifications appear in the ordering paragraphs ofthis Order. 2. Disputed Findings The District contends the Decision was flawedin light of its objectionsto the Commission’sspecific formal findings of fact (“FOF”). (Rhg. App., at pp. 41-45.) The District’s objections are discussed below. FOF Number| states: 1. Cal-Am must implement all measures in the “Mitigation Program for the District’s Water Allocation Program Environmental Impact Report” not implemented by the ManagementDistrict. (D.11-03-035,at p. 20.) The District objects to this finding by arguing that no evidence showedit is not implementing the Mitigation Measures. (Rhg. App., at p. 41.) That is not the point. FOF Number| merely paraphrases Order 95-10, and nothingin the Decision suggested the District is not currently implementing those measures. FOF Numbers2, 3 & 4 are challenged for similar reasons, andstate: 2. The Mitigation Program for the District’s Water allocation Program Environmental Impact Report is comprised of mitigation measuresforfisheries, riparian vegetation and wildlife, and lagoon vegetation and wildlife. 3. The ManagementDistrict’s 2007-2008 Annual Report for the Mitigation program Showsthat the Management District allocated nearly $1 million of costs of its new office building to the Mitigation Program. “8 See Order 95-10, at p. 43 [Ordering Paragraph Number11]. 40547695 17 A.10-01-012 Licdl 4. The ManagementDistrict’s 2007-2008 Annual Report for the Mitigation Program showsthe Aquifer Storage and Recovery project as a componentofthe user fee Mitigation program costs and also as a stand-alone additionaluser fee. (D.11-03-035, at pp. 20-21.) The District argues these findings “imply”certain costs are too high or should not be recovered. It argues it would havejustified those costs had the Commission held hearings on the matter. (Rhg. App., at pp. 42-43.) The District’s speculation as to an alleged hidden meaning or implication behindour statements does notestablish legal error. Like FOF 1, these findings merely paraphrase andrestate information contained in the record evidence. Evidentiary hearings were not necessary to simply restate the evidence. FOF Number5 states: 5. Cal-Am is actively pursuing water supply augmentation through its Coastal Water Project and the Management District need not act on Cal-Am’s behalf. (D.11-03-035,at p. 21.) The District objects to FOF 5 by arguing it is inaccurate to assert thatits efforts are done solely on Cal-Am’s behalf. (Rhg.app., at p. 43.) FOF 5 merelyreflects a point of view, and it was not material to rendering the ultimate determination. Nevertheless, to alleviate any confusion, we modify FOF Number5 as set forth in the ordering paragraphsofthis Order. FOF Numbers 6 & 7 are challenged on the same ground,andstate: 6. The rebate program,salaries for the Conservation Office Staff and project expenditures for ordinance enforcement are bookedaspart of the Mitigation Program, even though such costs are not included in the ManagementDistrict’s 2007-2008 Annual Report for the Mitigation Program. The ManagementDistrict did not explain whether these booked costs are included in the user fee even though the Commission has approved and separately funded a joint conservation program with the managementDistrict which may include some of the samecosts. 40547695 18 A.10-01-012 Licdl 7. The testimony supporting the application shows accounting treatment inconsistent with Commission ratemaking standards. (D.11-03-035,at p. 21.) The District objects to these findings by arguing it would have presented evidence to support its cost requests if there had been evidentiary hearings. (Rhg. app., at pp. 43-44.) As already discussed, the District was aware of the evidentiary requirements ‘in this proceeding andit is not error on the part of the Commission that the evidence the parties provided was inadequate. The District offers no authority which suggests in such circumstances we must allow evidentiary hearingsso that a party cantry andrehabilitate their evidence. Nevertheless, to complete the statement in FOF 7 andrelated text, we modify the Decision as set forth in the ordering paragraphsof this Order. FOF Number8 states: 8. The user fee and Carmel River Mitigation Program have a unique history, including particularly that the funds have been remitted to a government agency,that render reasonable Cal-Am’s request to recover the amounts recorded in the account. (D.11-03-035,at p. 21.) The District objects to this finding by arguing its view that FOF 8 should have been applied broadly to approve the User Fee. It also points out that Cal-Am does not retain any User Fee “proceeds.” (Rhg. App., at pp. 44-45.) That Cal-Am hasin the past remitted the User Fee to the District (a government agency) doesnot establish that the Commission should have concluded the proposedsettlement here was reasonable. Further, the District’s reference to “proceeds” is troubling. If the proposed User Fee would result in “proceeds”(1.e., profits), it would further support our conclusion that it was correct to question the settlement. D. Sufficiency of the Record Evidence The District asserts the Decision erred because the findings were not supported by the record evidence. (Rhg. App., at pp. 45-50, citing e.g., City of Vernonv. Public Utilities Commission (2001) 88 Cal.App. 4" 672, 678.) 40547695 19 A.10-01-012 Lied] The District argues the requirement was not met here because the record was never even completely established in this proceeding. To support thatallegation,it reiterates its argumentthat it did not know ofthe relevant issues, it was deprived of the opportunity to present evidence andbrief, and it had no opportunity to defend its proposal in hearings. For the reasons already discussed in this Order, this allegation is without merit. The District also claims the Decision erred because it made certain inaccurate statements or assumptions. (Rhg. App., at pp. 47-50.) For example, the District suggests we wrongly presumed the UserFeeis a “Cal-Am charge” rather than a “District charge.” (Rhg. App., at p. 47.) That is incorrect. We clearly understood that distinction as evidenced by our statement that Cal-Am would merely collect fee for the District, but that it is the District which originates the charge. (D.11-03-035,at p. 1.) Whatthe District ignoresis that the fee is still a charge that would billed and recovered from Cal-Am customer. As such, the “charge,” regardless of the originator, was properly subject to the Section 451 review.4 The District next contends we ignored evidence establishing there was no improper duplication ofefforts or costs.“ To support this claim,it points to testimony whichstated: “I have not observed any duplication of effort between the District and California American Water in achieving the stated goals for Phase 1 ASR.” (Rhg. App., at p. 49, relying on Cal-Am/Shubert,at p. 12.) Wedid not ignore that testimony. But we were not persuaded that no duplication existed based on that one observation when there were other evidentiary concerns noted in the Decision. (D.11-03-035, at pp. 12-13.) “ Section 451 states in pertinent part: “All charges demandedorreceived bya utility...” must be just and reasonable.” * The District also suggests that the Commission had the burden to prove the District’s cost request was unreasonable. That is incorrect. The proponent of a request alwayscarries the burden to proveits request is reasonable. (See e.g., Re Southern California Edison Company [D.83-05-036] (1983) 11 Cal.P.U.C.2d 474, 475.) 40547695 20 A.10-01-012 Licdl Similarly, the District claims we failed to recognize that escalation of the 1990 costs (as provided in the evidence) was necessaryto justify the requested 2010-2011 levels. (Rhg. App., at pp. 49-50.) Contrary to the District’s claim, we were cognizantof the fact some escalation and updating of cots was necessary. For example, the Decision explicitly noted that “up-to-date cost and budget data” was required. (D.11-03-035, at p. 16.) And one of the things Cal-Am wasdirected to provide with any amended application was an updated version of the budget to support current cost levels. (D.11-03-035,at p. 17.) The District also contends the Decision erroneously stated the 1990 Environmental Impact Report (“EIR”) wasattached to its District Manager’s testimony. (Rhg. App., at p. 50.) That is not actually what the Decision said. The Decision stated that the “1990 EIR document referencedin the Board’s decision” [SWRCB Order No. WR 95-10] was attached to the District manager’s testimony. The referenced document was a November5, 1990, District document.” That documentwasin fact attached to the District Manager’s testimony as Exhibit DF-1. Finally, the District claims the Decision confused the EIR Mitigation Program with the Five-Year Mitigation Program. (Rhg. App., at p. 50.) It did not. The relevant discussion in the Decision merely mentioned the Water Allocation Mitigation Program measures that are Cal-Am’s responsibility under Order 95-10, and noted that those measures were “similar to” those in the EIR Mitigation Program. (D.11-03-035, at p. 15.) It did not confuse the two or say they were one and the same. E. Duty to Weigh the Relevant Evidence The District contends the Commission failed to adequately weigh the evidence consistent with relevant case law. (Rhg. App., at pp. 47-50, relying on Industrial Communications Systems, Inc. v. Public Utilities Commission (“Industrial ® See Order 95-10, at p. 43, fn. 25. 40547695 21 A.10-01-012 Liedl Communications”) (1978) 22 Cal.3d 572, 582-583; United States Steel Corporation v. Public Utilities Commission (“U.S. Steel’) (1981) 29 Cal.3d 603, 609.) It is well established that an agency’s duty is to weigh the relevant evidence provided in a proceeding. The District offers nothing to show wefailed to considerall the relevant evidence in this proceeding. The District merely reargues evidence it deems dispositive and argues the Commission should have found differently. As previously noted, an application for rehearing is not a permissible vehicle to merely reargue the evidence or ask the Commission to reweigh that evidence. Nevertheless, we will address the District’s specific challenges below. First, the District asserts we relied largely on an old and out-of-date annual report, and that it should have been allowed to present more recent and relevant annual reports, budgets, and other evidence. It is true we did reference an old annual report (2007-2008) that was among the evidence. (See e.g., D.11-03-035, at pp. 11-16.) However, as indicated above we also recognized certain updating of information was necessary, but was notavailable. Further, that is the information the parties chose to submit. Arguably, the District’s current (2010-2011) fee request should have been supported by the most recent and relevant evidence the District had available. That it chose not to submit more recent information with the settlement does not mean weerred by considering what was provided. TheDistrict also suggests the Commissionfailed to consider evidence showing there was effective collaboration between the parties, which it argues would help support a conclusionthat the proposed costs were cost-effective. (Rhg. App., at p. 51, fns. 156-158, citing Cal-Am/Schubert, at pp. 4, A 17; MPWMD/Fuerst, at p. A 8.) The District fails to establish how effective collaboration, even if true, equates to proofthat specific program costs are cost-effective. It simply meansthe ® See also Bixby v. Pierno (1971) 4 Cal.3d 130, 149; County ofSan Diego v. Assessment Appeals Board No 2 ofSan Diego County (1983) 148 Cal.App.3d 548, 554-555. 40547695 22 A.10-01-012 L/edl parties work well together. Further, the evidence the District cites to was not particularly insightful. The referenced evidence merely identified certain project activities and stated that they were cost-effective, and set out an overview ofthe District and its budget process. There was no actual corresponding cost data. II. CONCLUSION For the reasons stated above, D.11-03-035 is modified to reflect the clarifications specified below. The application for rehearing of D.11-03-035, as modified, is denied because no legal error has been shown. Therefore IT IS ORDEREDthat: 1. D.11-03-035 is modified as follows: a. Pages 21-22 are modified to add the following Findings of Fact: 9. Public Utilities Code Section 451 requires that all rates and charges demandedor received by a public utility be just and reasonable. 10. Commission Rule of Practice and Procedure 12.1 provides that a settlement agreementshall not be approved unlessit is reasonable in light of the whole record, consistent with the law, and in the public interest. 11. Decision 09-07-021 identified the issues and evidence required to support approvalof the District's User Fee as a componentof California- American’srates. b. Page 22, Conclusion of Law Number2 is deleted and replaced as follows: 2. The evidence in this proceedingfailed to: demonstrate the cost-effectiveness of the proposed program costs; explain the increase in annual program costs; resolve questions concerning possible duplication of certain costs and activities; explain certain User Fee cost components; and demonstrate that the calculation methodology derived a fee that represents the actual cost to implement the Mitigation and ASR programs. 40547695 23 A.10-01-012 40547695 Liedl c. Page 22, Conclusion of Law Number 3 is deleted and replaced as follows: 3. The evidencefailed to establish the proposed settlement agreementis just and reasonable pursuant to Public Utilities Code Section 451. d. Page 22, Conclusion of Law Number4 is deleted and replaced as follows: 4. The evidencefailed to establish the proposed settlement agreementis reasonable in light of the whole record, consistent with the law, and in the public interest pursuant to Rule of Practice and Procedure 12.1. e. Page 22, Conclusion of Law Number5 is deleted and replaced as follows: 5. California-American Water Companyshould be authorized to amendthis application within 60 days of the effective date of today’s decision by filing and serving oneofthe following: A. A joint program proposalfor the District to perform the Carmel River Mitigation measures based on an updated version of the budgetsetout in Attachment1, and to fund the District’s portion of the Aquifer Storage and Recovery Project, or B. Animplementation plan for Cal-Am to assume direct responsibility for the Carmel River Mitigation measures, should the District cease to fund the measures. f. Page 22 is modified to add Conclusion of Law Number6 asfollows: 6. The Monterey Peninsula Water Management District User Fee Memorandum Account should close 60 days after the effective date of this Order. California-American should be authorizedtofile a Tier 2 advice letter to amortize the amounts recorded in that account over 12 months with interest to be calculated based on the 90-day commercial paperrate. g. Page 22 is modified to add Conclusion of Law Number7 as follows: 7. The proposed settlement agreement should not be approved. 24 A.10-01-012 40547695 L/cdl f. Page 5, Finding of Fact Number5 is modified as follows: 5. Cal-Am is actively pursuing water supply augmentation through its Coastal Water Project. g. The last sentence ofthefirst paragraph on page 12 is modifiedtostate: This does not appear to be consistent with the Commission’s cost of service ratemaking standards. h. Page 21, Finding of Fact Number7 is modifiedto state: 7. The testimony supporting the application shows accounting treatment which appears to be inconsistent with the Commission’s cost of service ratemaking standards. This orderis effective today. Dated January 24, 2013, at San Francisco, California. MICHAEL R. PEEVEY President MICHEL PETER FLORIO CATHERINEJ.K. SANDOVAL MARKJ. FERRON CARLA J. PETERMAN Commissioners 25 PROOF OF SERVICE I, WendyPefia, declare: I am a citizen of the United States and employed in San Francisco County, California. I am over the age of eighteen years and not a party to the within-entitled action. My business address is 505 SansomeStreet, Suite 900, San Francisco, California 94111. On February 25, 2013, I served a copy of the within document: PETITION FOR REVIEW by placing the documentlisted above in a sealed envelope with postage thereon fully prepaid, in the United States mail at San Francisco, California addressed as set forth below: Paul Clanon Supreme Court of California Executive Director Clerk of the Court California Public Utilities Commission 350 McAllister Street, Room 1295 505 Van Ness Avenue San Francisco, CA 94102 San Francisco, CA 94102 Frank Lindh Sarah E. Leeper General Counsel California-American Water Company California Public Utilities Commission 333 HayesStreet, Suite 202 505 Van Ness Avenue San Francisco, CA 94102 San Francisco, CA 94102 I am readily familiar with the firm’s practice of collection and processing correspondencefor mailing. Underthat practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion ofthe party served, service is presumedinvalid if postal cancellation date or postage meter dateis more than one day after date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the aboveis true andcorrect. Executed on February 25, 2013, at San Francisco, California ANON. 3465/001/X149274 vi