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STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

TO: All Water and Sewer Service Utilities

Enclosed is draft Resolution W-4664 of the Division of Water and Audits. It will be on the Commission's November 1, 2007 agenda. The Commission may then act on this Resolution or it may postpone action until later.

When the Commission acts on the draft resolution, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare a different resolution. Only when the Commission acts does the resolution become binding on the parties.

Parties to this matter may file comments on this draft resolution. An original and 2 copies of the comments, with a certificate of service, should be submitted to:

    Division of Water and Audits, Third Floor

            Attention: Fred Curry

    California Public Utilities Commission

    505 Van Ness Avenue

    San Francisco, CA 94102

Parties may submit comments on or before October 18, 2007. The date of submission is the date the comments are received by the Division of Water and Audits. Parties must serve a copy of their comments on all persons on the service list attached to the draft Resolution, on the same date that the comments are submitted to the Division of Water and Audits.

Comments shall be limited to five pages in length plus a subject index listing the recommended changes to the draft resolution, a table of authorities and appendix setting forth the proposed findings and ordering paragraphs.

Comments shall focus on factual, legal, or technical errors in the draft resolution. Comments that merely reargue positions taken in the advice letter or protests will be accorded no weight and are not to be submitted. Late submitted comments will not be considered.

/s/ RAMI KAHLON

Rami Kahlon, Director

Division of Water and Audits

Enclosures: Draft Resolution W-4664

Certificate of Service

Service List

WATER/FLC:jrb

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

DIVISION OF WATER AND AUDITS RESOLUTION NO. W-4664

RESOLUTION

RESOLUTION NO. W-4664. AMENDS THE WATER INDUSTRY RULES OF GENERAL ORDER 96-B TO PROVIDE EXCEPTIONS TO THE CUSTOMER NOTICE REQUIREMENTS ESTABLISHED BY GENERAL RULE 4.2.

SUMMARY

This resolution exempts certain Tier 1 Advice Letter filings from the notice requirement of General Rule 4.2 of General Order (GO) 96-B.

BACKGROUND

On September 6, 2007 the Commission approved Resolution E-4111 that determined that:

GO 96-B, General Rule 1.4 requires the appropriate Industry Divisions to draft proposed amendments to the Industry Rules whenever any part of the Industry Rules must be amended to ensure consistency with applicable statutes and Commission orders.

General Rule 4.2 requires that unless no notice or a shorter notice is authorized by statute, Industry Rule, or other Commission order, a utility must notify customers when it files an advice letter requesting higher rates or charges, or more restrictive terms or conditions, than those currently in effect. The rule requires that the utility give affected customers 30 days' notice before the effective date of the advice letter, and sets forth several means of providing notice such as bill inserts, notices on bills, and separate mailing.

Pursuant to General Rule 1.4, the Division of Water and Audits (Division) has drafted this resolution to propose an amendment to the Water Industry Rules to allow exceptions to the customer notice requirements of General Rule 4.2. The amendment is set forth in the ordering paragraphs of this resolution.

DISCUSSION

The Commission has authorized small (Class C and D) water and sewer service utilities to file advice letters annually to increase rates by the consumer price index (CPI offset). This filing is classified as Tier 1 (effective pending disposition) but presently requires a 30 day customer notice. Some small systems do not take advantage of this cost of living increase because of the cost and inconvenience of the notice requirement.

In addition, the Commission has authorized water and sewer service utilities to file advice letters to revise rates based on "offsettable" expense changes. These are pass-throughs of external costs imposed by suppliers and only apply to certain expenses. These are presently classified as Tier 2, but should be classified as Tier 1. Presently, these advice letters require 30-day notice. Even with the notice the Commission has determined that these expenses are not under the utilities' control and that pass-through is just and reasonable if properly calculated.

And, finally, the Commission has authorized pass-through of additional taxes imposed upon the utility ("utility tax") by Tier 1 advice letter.

According to existing Commission procedures, these advice letters except for expense offset advice letters, are made effective on the date filed. The 30-day customer notice requirement of General Rule 4.2 requires the advice letters be noticed thirty days before filing. This can lead to confusion in advice letter numbers if another advice letter is filed in the interim. In a practical sense, a formal notice is not required because the Commission has already found these rate changes to be reasonable. An exception to General Rule 4.2 is warranted for these advice letter filings.

Division anticipates that many utilities may still notice the rate changes themselves, but after the fact. The purpose of the notice will be to inform the customer of the basis for the rate change, and may depend upon the reaction of the customers to the change itself as seen on their bills.

COMMENTS

Public Utilities Code section 311(g) (1) requires that draft resolutions be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission. A draft of this resolution was mailed for comment to all water and sewer service utilities and other interested parties. The comments were received on ________.

FINDINGS

1. The notice provisions of General Rule 4.2 of GO 96-B are most applicable to those water and sewer service advice letters that request an increase to rates or charges, or more restrictive terms and conditions of service, without prior specific Commission or statutory authority.

2. Exceptions to General Rule 4.2 of GO 96-B are necessary for water and sewer service utility advice letters filed in compliance with Commission orders, or to comply with a specific statute, to implement authorized rate increases, or more restrictive terms or conditions of service.

3. Exceptions to General Rule 4.2 are necessary for CPI offset, expense offset, and utility tax advice letters as described in this resolution.

THEREFORE IT IS ORDERED THAT:

1. The Water Industry Rules of General Order 96-B are amended to read:

2. An expense offset advice letter (Industry Rule 7.3.2 (4)) is reclassified as Tier 1.

3. This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed, and adopted at a conference of the Public Utilities Commission of the State of California held on November 1, 2007, the following Commissioners voting favorably thereon:

CERTIFICATE OF SERVICE

I certify that I have by mail this day served a true copy of Draft Resolution W-4664 on all parties in this filing or their attorneys as shown on the attached list.

Dated September 28, 2007, at San Francisco, California.

NOTICE

Parties should notify the Division of Water and Audits, Third Floor, California Public Utilities Commission, 505 Van Ness Avenue, San Francisco, CA 94102, of any change of address to ensure that they continue to receive documents. You must indicate the Resolution number on which your name appears.

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