Corona City Water Co. v. Public Utilities Commission
Docket: S. F. 20433
Court: California Supreme Court; November 25, 1960; California; State Supreme Court
Corona City Water Company and Temescal Water Company challenge a Public Utilities Commission order that denied Corona’s application to sell property to Temescal and determined Temescal is a regulated public utility. Temescal, previously a nonpublic mutual water company, had not been under commission regulation. Corona, a regulated utility, had previously acquired assets from Coronita Mutual Water Company with conditions to retain certain facilities.
In 1956, Corona sought permission to sell those facilities to Temescal, claiming they were unnecessary for its operations. The Commission, however, initiated an investigation into the relationship between the two companies and concluded that Temescal is a public utility, having dedicated its property to public use and not exempt from regulation. Furthermore, the Commission found the water production facilities were necessary for Corona and denied the sale.
Both companies are closely intertwined, sharing the same directors and management, with Corona owning approximately 19% of Temescal's stock. Historically, Temescal owned all of Corona's stock until it transferred ownership to trustees to maintain its mutual status. The trustees are bound to act under the direction of Temescal's stockholders. The companies have a joint operational policy aimed at developing water resources for the public benefit, including Temescal's use of eminent domain for securing water sources and its commitment to supply water to Corona. Their operations are integrated, providing comprehensive water service to the city of Corona and surrounding areas.
Temescal primarily provides water for itself and its agricultural stockholders while Corona delivers water for domestic use to the public in the city of Corona. Over time, their functions and service areas have overlapped, with Temescal supplying water to nonstockholders through Corona meters and Corona providing water to Temescal stockholders for citrus grove spraying without charge. Although Corona charges nonstockholders for water, both companies consider the water supplied to Temescal stockholders as fulfilling their stock entitlement.
Around the time of a commission investigation, the two companies began offsetting the water Temescal stockholders received from Corona against charges to Corona by Temescal. Neither company charges the other for the use of their respective water delivery lines. Temescal argues it has not dedicated its property to public use, but the commission finds otherwise, citing Temescal’s extensive collaboration with Corona, which is a public utility.
Temescal claims exemption from public utility regulation under section 2705 of the Public Utilities Code, which allows corporations delivering water solely to stockholders at cost to avoid regulation. The commission counters that Temescal is not exempt because it delivers water to nonstockholders through Corona, which it controls, to evade regulation. Temescal argues that separate corporate entities should not be disregarded unless an inequitable result occurs, which it contends has not been demonstrated.
The commission asserts that the exemption under section 2705 does not apply when a major customer lacks a voice in management and cannot effectively enforce rights as a stockholder. Therefore, classifying such a customer as a stockholder would undermine the principles of the statute.
The term "stockholder" must be understood as referring to a genuine stockholder capable of independently exercising management rights and enforcing legal entitlements, rather than merely acting as a representative for others. The assertion that there has been no infringement of Corona's rights is insufficient, as the intercorporate relationship poses inherent risks to both Corona and its customers. Independent stockholders of Temescal could potentially subsidize their water service at Corona’s expense without facing objections due to their control over the situation. This potential for abuse, rather than its actual execution, undermines the principles of section 2705.
The context involves a dispute over the legal right of Corona to pump water from a well it purchased from Coronita, with both Corona and Temescal contending that only Temescal can lawfully exercise that right. Despite Corona's proposal to sell the well to Temescal without including the water right's value, the commission did not accept Corona's position that it could not pump the well, highlighting that the only opposition came from a citrus corporation linked to Temescal. The commission decided that the legality of Corona pumping the well should be resolved through litigation rather than administrative ruling, emphasizing the need for an adversarial process with all interested parties involved.
This situation reflects an inconsistency in Corona and Temescal's claims regarding the pumping rights. The court affirmed the commission's decision to require litigation before allowing the sale of the well, given its potential value to Corona and the influence of Temescal. The order was affirmed, with some judges concurring and one dissenting.
