4. Assignment of Proceeding

John A. Bohn is the assigned Commissioner and Janice L. Grau is the assigned ALJ in this proceeding.

Findings of Fact

1. In D.08-02-036, the Commission authorized Suburban and the other Class A water utilities to establish memorandum accounts to track the legal and related costs of participating in this proceeding from the date of issuance of this OII. Legal and related expenses incurred in preparing applications consolidated with this proceeding were excluded from these memorandum accounts.

2. Limited rehearing of D.08-02-036 was granted on the issue of memorandum account treatment for Class A water utilities, other than Suburban, for the legal and related costs of participating in this proceeding.

3. In some circumstances, the Commission has considered the following factors in reviewing requests for memorandum accounts: 1) the expense is caused by an event of an exceptional nature that is not under the utility's control; 2) the expense cannot have been reasonably foreseen in the utility's last general rate case and will occur before the utility's next general rate case; 3) the expense is of a substantial nature in the amount of money involved; and 4) the ratepayers will benefit by the memorandum account treatment. SP U-27-W incorporates these factors with certain modifications.

4. Even when the Commission has applied the factors listed in Finding of Fact 3, the Commission has not always applied all of them or required that they all be met before authorizing a memorandum account. At different times, the Commission has considered all of these factors, considered some of these factors, or has relied on other public policy considerations. In approving low income ratepayer assistance programs in D.06-11-052 and D.06-11-053 to implement a policy objective of the Commission's December 2005 Water Action Plan, the Commission authorized memorandum accounts to track costs associated with those programs without considering any of these factors.

5. This OII was not envisioned in the Commission's Water Action Plan. The OII's initial schedule called for completing this proceeding in a limited period of time on a narrow range of policy issues with concurrent determinations on conservation rate design and revenue adjustment mechanism proposals.

6. The applications consolidated with this OII were filed independent of the rate case cycle of the Class A water utilities.

7. Phase 1 of this proceeding adopted five conservation rate design settlements and settlement agreements between the utilities and consumer groups concerning mechanisms to track the impact of the adopted rate designs on consumers, especially low-income ratepayers and persons with disabilities, and procedures for customer education and outreach.

8. In D.92-09-084, after the issuance of the Drought OII, I.89-03-005, the Commission authorized the tracking of legal expenses in conservation memorandum accounts.

9. The Commission has authorized memorandum accounts without a specific request in a number of resolutions, including Resolutions W-4089, W-3784, W-3940, W-4014, and E-3331.

10. Future requests for memorandum accounts to track costs associated with participating in generic water proceedings should be made by advice letter in accordance with General Order 96-B and the Water Industry rules. The Division of Water and Audits should prepare a resolution for Commission consideration of the request, unless the Commission has previously directed staff to deny or to approve the particular relief requested.

11. When a utility seeks recovery of costs tracked in a memorandum account, the utility must also demonstrate that the costs are not covered by other authorized rates, it is appropriate for ratepayers to pay for those categories of costs in addition to otherwise authorized rates, the utility acted prudently when it incurred those costs, and the level of costs is reasonable.

Conclusions of Law

1. Authorization of memorandum accounts to track legal and related expenses incurred for participating in this proceeding from the issuance of the OII is consistent with the Commission's discretion to weigh public policy considerations, is consistent with authorization for tracking legal expenses accorded in the Drought OII, and is consistent with the Commission's authority to authorize memorandum accounts without a specific request.

2. It is reasonable to require future requests for memorandum accounts to track costs associated with participating in generic water proceedings to be made by advice letter in accordance with General Order 96-B and the Water Industry rules.

3. Memorandum accounts for legal and related expenses for participation in this proceeding should be granted to all Class A water utilities, consistent with the grant to Suburban.

4. The legal and related costs of required participation in this generic proceeding to address rate and non-rate related conservation issues are costs that can be recovered from ratepayers, provided that the expenses have not been otherwise authorized in rates and are not imprudent or unreasonable.

ORDER

IT IS ORDERED that:

1. Apple Valley Ranchos Water Company, California-American Water Company, California Water Service Company, Golden State Water Company, Great Oaks Water Company, Park Water Company, San Gabriel Valley Water Company, San Jose Water Company, and Valencia Water Company may establish memorandum accounts to track legal and related expenses for participating in this proceeding from the date of issuance of this Order Instituting Investigation. To establish these memorandum accounts, Apple Valley Ranchos Water Company, California-American Water Company, California Water Service Company, Golden State Water Company, Great Oaks Water Company, Park Water Company, San Gabriel Valley Water Company, San Jose Water Company, and Valencia Water Company must file Tier 1 advice letters within 30 days of the issuance of this decision, subject to review and approval by the Commission's Division of Water and Audits. In these advice letters, the utilities are required to update the Preliminary Statements contained in their tariffs. These memorandum accounts may include legal and related expenses tracked in these memorandum accounts pursuant to D.08-02-036. Once these memorandum accounts are established, Apple Valley Ranchos Water Company, California-American Water Company, California Water Service Company, Golden State Water Company, Great Oaks Water Company, Park Water Company, San Gabriel Valley Water Company, San Jose Water Company, and Valencia Water Company may seek recovery of the expenses booked to these memorandum accounts in their next general rate cases or by filing Tier 3 advice letters. Authorization of these memorandum accounts does not guarantee recovery of expenses booked to these accounts that have been otherwise authorized in rates or are imprudent or unreasonable.

2. Legal and related expenses incurred in preparing applications consolidated with this proceeding, whether incurred prior or subsequent to the issuance of this Order Instituting Investigation, are excluded from the memorandum accounts authorized in Ordering Paragraph 1.

3. Future requests for memorandum accounts to track costs associated with participating in generic water proceedings shall be made by advice letter in accordance with General Order 96-B and the Water Industry rules. The Division of Water and Audits shall prepare a resolution for Commission consideration of the request unless the Commission has previously directed staff to deny or to approve the particular relief requested.

This order is effective today.

Dated April 8, 2010, at San Francisco, California.

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