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September 14, 2010

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State Regulatory Relations

California PUC Approves SouthWest Water Merger

By Order issued September 3, 2010, the California Public Utilities Commission cleared the way for the acquisition of SouthWest Water Company, parent of Suburban Water Systems, by IIF Subway Investment, LP, an affiliate of JPMorgan IIF Acquisitions, LLC, and USA Water Services, LLC. In adopting a settlement agreement submitted by the Joint Applicants and the Division of Ratepayer Advocates, the Commission concluded that the transaction would provide Suburban with greater access to needed capital while not otherwise affecting Suburban’s day-to-day operations: “It is anticipated that there will be no practical effect on Suburban’s management, employee base, revenue requirement, rate base, capital structure or regulation by the Commission.” The merger had previously been approved by regulators in the other four states in which SouthWest subsidiaries provide regulated water and/or wastewater service.


Federal Court Rules Against Developer

The United States District Court for the District of Arizona ruled that a developer had an affirmative duty to disclose to prospective homeowners that they ultimately would bear the burden of paying substantial sums for infrastructure costs. In Grimmelmann v. Pulte Home Corporation, 2010 U.S. Dist. LEXIS 89695, the defendant entered into an agreement with Citizens Water Services Company of Arizona to advance the water company between $80 million and $100 million for the construction of water facilities to serve its development. The agreement provided that Ctizens would then reimburse the developer for its construction advance. The court concluded that by not advising home purchasers that the utility would seek to recoup its investment through future utility rates, the developer violated Arizona’s Consumer Fraud Act and, consequently, was subject to damages.


Missouri PSC Revisits Availability Fees

In a recent rate proceeding, the Missouri Public Service Commission announced its intention to change, on a prospective basis, its practices and policies regarding the treatment of revenue derived through the use of availability, reservation, standby, connection and other similar fees. In the Matter of Lake Region Water and Sewer Company, 2010 Mo. PSC LEXIS 794. Historically, the commission has held that such fees were non-jurisdictional because, in the PSC’s view, they did not constitute or relate to a utility “service,” i.e., the treatment and/or transportation of water or sewage. However, the PSC apparently has been convinced to take such revenue streams into account for ratemaking purposes (e.g., by imputing revenues) and opened a workshop docket to lead to a rulemaking with that goal in mind.