FONTANA - Reduced rates or refunds could be the result of an investigation that may be ordered today by the state Public Utilities Commission into the Fontana Water Co.

"Scrutiny is warranted,'' said Mayor Mark Nuaimi. "If nothing else, it keeps a bright light shining over management practices of the Fontana Water Co.''

The possible investigation is the latest development in two water cases before the PUC, where state ratepayer advocates and city and school district officials are fighting a proposed 24 percent rate hike over three years and appealing a 32 percent increase over three years, now in effect.

The Fontana Water Co. is a division of the privately owned San Gabriel Valley Water Co. The increase was requested to cover the company's operating and infrastructure expenses.

But opponents say the water-rate increases are excessive.

The investigation would look into the water company's revenue requirement, rates, rate base, dividends, service, facilities and maintenance practices.

The water company is against the investigation, arguing it is unnecessary because the issues have been reviewed by the PUC during the hearings on the two rate cases, according to a letter issued to the PUC from Martin Mattes, an attorney representing the water company.

"For the commission to open an (investigation) at this time especially one that envisions additional hearings would be profoundly disruptive and inefficient," Mattes said.

The PUC's order for an investigation would also put the water company on notice that a reduction in rates and refunds may result.

But the company said it has been on notice since July 2004, and again during the water-rate case hearings and the PUC's water division-issued audit report.

The unbinding audit said the water company owes ratepayers in Fontana and surrounding areas nearly $14 million in company proceeds.

The audit raised some eyebrows, said Public Works Director Curtis Aaron.

"At least with this investigation, they might reveal some things that aren't quite right. But then again, they might show everything else is fine," he said.

Both the city of Fontana and the Division of the Office of Ratepayer Advocates support the investigation.

"It is fair to say that the prior and current rate cases, as well as the commission-ordered audit of San Gabriel (Valley Water's) fi nancial practices regarding contamination and condemnation funds, reveal a pattern of disturbing and questionable practices followed by San Gabriel (Valley Water) over the years in both its Los Angeles and Fontana divisions," said Kendall MacVey, representing Fontana in a letter to the PUC.

He said fines and reform of the water company's practices can be best addressed through an investigation and so the PUC won't have to revisit practice issues again in future rate cases.

Meanwhile, the city will explore the possibility of buying the water company with $1 million that was allocated last week during the City Council's midyear budget review.

The city is weighing its options on how best to resolve issues surrounding water rates, Aaron said.

"Do we fight an increase every three years to keep it as low as possible?" he said, referring to requests allowed every three years to raise water rates.

The city is looking at all alternatives, Nuaimi said, "to provide a safe, reliable, affordable water supply to residents."

But the water company is not for sale.