7. Assignment of Proceeding

John A. Bohn is the assigned Commissioner and Gary Weatherford is the assigned ALJ in these proceedings.

Findings of Fact

1. To date the Commission has restricted increasing block water conservation rate designs to residential classes of consumers.

2. A pilot two-tier increasing block residential conservation rate design is superior to a three-tier design for the settings of the FWC division and the LAC division due to its comparative simplicity, ease of implementation and capacity to capture conservation.

3. The single quantity rate calculated to be the baseline for the limited, Monterey-style WRAM can be calculated effective July 1, 2010, based on the conservation rate design procedure adopted herein.

4. Over the years 2003-2008, the average monthly residential use was 25 ccf for the FWC division and 20 ccf for the LAC division. Median winter water use by residential customers in the FWC division is 16 ccf per month and in the LAC division is 13 ccf per month, and that use, weighted as it is mostly by indoor water use, is a proper measure for determining the breaking point between tier 1 and tier 2 in a two-tier increasing block conservation rate design, as outdoor water use is likely to be more responsive to higher price signals. Under this rate design, approximately 57% of the water sold to residential customers is expected to be billed at tier 1 rates and 43% at tier 2 rates for the FWC division, and approximately 55% of the water sold to residential customers is expected to be billed at tier 1 rates and 45% from tier 2 rates for the LAC division.

5. The service-charge-to-quantity-charge ratio of 46:54 in the LAC division can best be moved toward a 30:70 objective in a two-stepped manner through the adoption of a 35:65 ratio for the pilot conservation rate design.

6. A low-income (CARW) discount equivalent to 50% of the residential service charge under traditional rate design is more equitable than a straight percentage discount where service charges are being reduced.

7. For the 2004-2008 period, average annual water usage per customer was reduced in the residential class in the Los Angeles County division and the Fontana Water Company division, respectively, but it is unclear how much, if any, of those reductions were attributable to the reclassification of large-use customers from the residential class to the non-residential class. Two-tier increasing block rates for residential customers can be expected to reduce water use.

8. During the course of these proceedings San Gabriel modified its proposed conservation rate design from one with a unitary residential rate and surcharge to one with a two-tier increasing block rate structure. Later, at the request of the assigned ALJ, the company submitted an alternative three-tier proposal.

9. During the course of these proceedings, the DRA proposed a three-tier increasing rate design. Later, at the request of the assigned ALJ, the Division of Ratepayer Advocates submitted an alternative two-tier proposal.

10. CFC requested that the Commission delay implementation of conservation rates until cost studies are done.

11. During the course of these proceedings the revenue requirements changed for the San Gabriel's LAC and FWC divisions and may change further prior to the effective date of this decision and/or the next GRC. The revenue requirements for the LAC and FWC divisions may change further prior to the effective date of the increasing block rates contemplated in this decision and/or prior to the next GRC.

12. San Gabriel's non-residential rate design will not change under the pilot increasing block rate design.

13. The Commission has found that water revenue adjustment accounts relieve a company of additional variability in its revenues and that future proceedings would weigh that impact in determining risk and adopting a return on equity.

14. The Commission has found that balancing accounts for purchased water, purchased power, and pump taxes track variances in those costs and provide cost recovery.

15. The expense to San Gabriel of implementing conservation measures is not of a substantial amount in connection with a request for adoption of a Conservation memorandum account.

16. San Gabriel did not file its motion for a memorandum account to track legal and related costs of participating in the proceeding until 11 months after its initial application.

17. The expense to San Gabriel Valley Water Company of the legal and related costs to participate in this proceeding does not arise from an exceptional event, could have been reasonably foreseen at the last GRC for the Fontana Water Company division but not for the Los Angeles County division, is not of a substantial amount and adoption of a memorandum account to cover the expense would not be of benefit to ratepayers.

18. Dates for filing the next GRCs are July 2010 for the LAC division and July 2011 for the FWC division.

19. This proceeding was submitted on December 1, 2009.

Conclusions of Law

1. The pilot, two-tier conservation rate designs and Conservation Rate Design Procedure presented and adopted in this decision will advance the conservation objectives of the Commission's WAP. They will be reviewed after experience has been gained to determine their contribution to targeted reductions in consumption.

2. This rate design should apply only to direct-metered residential customers, excluding apartments, trailer parks, and any other facility in which residential customers receive service through a master meter.

3. The Monterey-style WRAMs and balancing accounts adopted in the decision implement the WAP's objective of decoupling sales and revenues to encourage successful conservation programs.

4. The single quantity rate to serve as the baseline for the limited, Monterey-style WRAM should be set effective July 1, 2010, based on the conservation rate design procedure adopted herein.

5. Equity considerations weigh against granting San Gabriel's motion for a memorandum account to track costs associated with its participation of this proceeding.

6. It is reasonable to deny San Gabriel`s motion for authority to open a memorandum account relative to participation in this proceeding because this proceeding is not an exceptional event, could have been reasonably foreseen at the last GRC for the Fontana Water Company division but not for the Los Angeles County division, the amount of the expense is not substantial and there was not an adequate showing of ratepayer benefit.

7. It is reasonable to deny San Gabriel's request for authority to open conservation memorandum accounts because San Gabriel has not established that the amount of the expenses involved would be substantial.

8. It is reasonable to deny CFC's request that the Commission delay implementation of conservation rates until cost studies are done.

9. In order to promptly implement conservation rates, water revenue adjustment mechanisms, balancing accounts, customer education, outreach, data collection and reporting, this decision should be effective immediately and the conservation rate design and associated features should become effective July 1, 2010.

10. This proceeding should be closed, effective immediately.

ORDER

IT IS ORDERED that:

1. San Gabriel Valley Water Company shall implement a pilot conservation rate design for the residential customer class in its two divisions. The rate design shall use the two-tier increasing block rate designs set forth below:

The complete schedule of adopted service charge rates for all sizes of residential meters shall be determined based on adopted revenues for the 12 months beginning July 1, 2010. In implementing the pilot conservation rate design and any Commission-authorized change in revenue requirement on July 1, 2010, or thereafter, San Gabriel shall follow all of the steps in the "Conservation Rate Design Procedure" set out as Figure 1 in this decision and in the Attachment.

2. San Gabriel Valley Water Company shall file a tier 1 advice letter no later than 20 days prior to July 1, 2010 in order to implement the adopted conservation rate design procedure that is effective July 1, 2010. San Gabriel Valley Water Company shall apply this rate design only for the duration of the pilot, which is until the effective date of rates approved in the 2011 General Rate Case in the Fontana Water Company division and the effective date of rates approved in the 2013 General Rate Case in the Los Angeles County division, unless extended by further order of the Commission. This rate design shall apply only to direct-metered residential customers, excluding apartments, trailer parks, and any other facility in which residential customers receive service through a master meter.

3. San Gabriel Valley Water Company shall apply in each division flat rate "California Alternative Rates for Water" (CARW) discounts equivalent to 50% of the residential service charges under traditional rate design. If the Commission authorizes a change to San Gabriel's revenue requirement, San Gabriel shall calculate the discount for CARW customers using the method used in this decision and described in the Conservation Rate Design Procedure set out in this decision and in the Attachment as Figure 1. In the next General Rate Case (GRC), San Gabriel shall propose a new method for determining CARW discounts that results in discounts comparable to that which qualifying customers received in the last GRC for that division, independent of the amount of the authorized service charge.

4. Monterey-styled water revenue adjustment mechanisms shall be applied in the two divisions.

(a) San Gabriel Valley Water Company shall file a Tier 1 advice letter updating the preliminary statement in its tariff to incorporate the Monterey-styled WRAM prior to its July 1, 2010 effective date.

(b) Commencing in 2011, San Gabriel Valley Water Company shall submit a written report to the Division of Water and Audits on the revenue over- or under-collected relative to sales of the same quantity of water at single quantity rates in each of the two ratemaking areas during the preceding calendar year by March 31 of the following year. That difference shall accrue interest at the 90-day commercial rate.

(c) The single quantity rate that shall be used as the baseline for the limited, Monterey-styled WRAM must be included in the advice letter filing, to be set effective July 1, 2010, based on the conservation rate design procedure adopted herein.

(d) If the water revenue adjustment mechanism over- or under-collection for either ratemaking division exceeds 2% of that area's total authorized revenue requirement for the preceding calendar year, a tier 1 advice letter shall be filed within 30 days by San Gabriel Valley Water Company that requests amortization of the balance in the account, which applies only to the residential class of customers. If the percentage is 2 or less, San Gabriel Valley Water Company shall propose amortizing in the next General Rate Case.

5. The existing full cost balancing accounts, which track all cost variances, shall continue to be applied in the Fontana Water Company division and existing incremental cost balancing accounts, which track variances in costs due to supplier price changes, shall continue to be applied in the Los Angeles County division.

6. San Gabriel Valley Water Company shall provide the following information in the General Rate Case filing in July 2011 for the Fontana Water Company division and July 2013 for the Los Angeles County division:

· Monthly per customer or service connection changes in consumption (compared to the same month in the previous year) by ratemaking division, separated by meter size and customer class, following the implementation of the conservation rate design pilot program;

· Surcredits and surcharges by ratemaking division and customer class implemented in amortizing water revenue adjustment accounts;

· Meter-reading errors, by division, that cause an unjustified crossing of tiers or retention within tiers;

· Number of low-income program participants disconnected for nonpayment by ratemaking division for two years before adoption of conservation rate design and for each year after that adoption;

· Number of residential disconnections for nonpayment by ratemaking division for two years before adoption of conservation rate design and for each year after that adoption;

· Incidences, if any, by ratemaking division of apparent unfair impact upon large, extended or multi-family households due to the two-tier rate design; and

· Any other ratemaking division-specific factor that might contribute to consumption changes and an estimation of its impact.

7. San Gabriel Valley Water Company shall include each general metered service customer's billing class (such as residential, commercial or public authority) on the monthly bill, as well as a telephone number for customers to call with questions or concerns about their customer classification. San Gabriel Valley Water Company shall include a website, with links to water conservation information, and a telephone number on customer bills for customers to call to obtain information about water conservation. In the interim, San Gabriel Valley Water Company shall include a link on the bill to one of its wholesalers: Metropolitan Water District's conservation website (www.bewaterwise.com), which contains water conservation information.

8. San Gabriel Valley Water Company shall track significant changes in the cost of purchased water and make a showing in its 2011 General Rate Case for the Fontana Water Company division and 2013 General Rate Case for the Los Angeles County division that it has exercised due diligence in ensuring the least-cost mix for its water sources and that any significant change in water purchases was reasonable.

9. San Gabriel Valley Water Company's request for authorization to establish conservation memorandum accounts is denied.

10. San Gabriel Valley Water Company's motion for authorization to establish memorandum accounts for participation in this proceeding is denied.

11. Any other motions or requests that may be pending in this proceeding, which relates to changes in rate design and ratesetting mechanisms, are denied.

12. With this decision, Application 08-09-008 is closed.

This order is effective today.

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

MICHAEL R. PEEVEY

President

DIAN M. GRUENEICH

JOHN A. BOHN

TIMOTHY ALAN SIMON

NANCY E. RYAN

Commissioners

ATTACHMENT

Table A: Comparison Chart of Illustrative Examples and Proposed Residential Conservation Rates

Table B

Illustrative Examples of Residential Service Charge Rates

(Based on dated 2009 Revenue Requirements)

Figure 1: Conservation Rate Design Procedure

1. First, calculate division-wide rates by traditional rate design procedures (Standard Practice U-07-W, para. 11) to obtain uniform rates, using GRC-adopted customers and sales quantities and GRC-adopted revenue amounts (as adjusted by subsequently effective advice letters) for the time period during which the proposed rates will be charged. 2. Convert the resulting low-income discount (50% of the service charge according to the CARW customer's meter size) into the dollar amount to apply as the CARW discount. 3. Calculate the amount of any required BMP 1.4 revenue shift from the monthly Service Charges to the Quantity Rates, based on the Commission-adopted targets. [This decision sets these targets as at least 64.6% of the adopted revenue requirement collected from the quantity revenues for the LAC division and at least 72.03% of the adopted revenue requirement collected from the quantity revenues for the FWC division.] 4. Add the dollar amount of the required BMP 1.4 revenue shift determined under Step No. 3 to the adopted Residential Quantity Rate Revenue used in Step No. 1. 5. Calculate the Single (uniform) Quantity Rate to be used in the Water Revenue Adjustment Mechanism calculation for residential customers by dividing the dollar amount developed in Step No. 4 by the Adopted Annual Residential ccf Sales used in Step No. 1. 6. Segregate the Adopted Annual Residential ccf Sales between the two rate tiers using the adopted percentages. [This decision finds that 55% of the adopted ccf sales quantities will be in the 1-13 ccf/mo. first tier for the LAC division and that 57% of the adopted ccf sales quantities will be in the 0-16 ccf/mo. first tier for the FWC division.] 7. Using the adopted Tier 1/Tier 2 rate differential, develop Tier 1 and Tier 2 Quantity Rates for residential customers that are designed to produce the exact same revenues as those produced by the uniform quantity rate determined in Step No. 5. [This decision sets the Tier 1/Tier 2 rate differential at 15%] 8. Subtract the dollar amount of the required BMP 1.4 revenue shift determined under Step No. 3 from the adopted revenue requirement collected from the service charge for Residential customers. 9. Develop monthly service charges by meter sizes for residential customers by dividing the service charge revenue calculated in Step No. 8 by the adopted number of residential services. (This monthly service charge will be calculated by taking the service charge derived from the Adopted Residential Revenue Requirement multiplied by one minus the required BMP 1.4 percentage revenue shift and multiplying this product by Commission-adopted meter ratios to develop service charge rates for each meter size.)