6. Comments on Proposed Decision

The proposed decision of the assigned Commissioner in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on September 9, 2010, and reply comments were filed on September 20, 2010, by the California-American Water Company, California Water Association, California Water Service Company, Fruitridge Vista Water Company, TURN and the Division of Ratepayer Advocates. The commenting IOUs criticized several features of the proposed decision, including:

· the requirement that proceeds be placed immediately upon receipt in a CIAC account;

· a contended obligation to sue responsible parties;

· defining net proceeds in a way that prevents any allocation to shareholders until proceeds have been applied to the extent needed for remediation;

· designation of cost-of-capital proceedings as the venue for consideration of an incentive in the form of a premium for "unique and exceptional" risk;

· contended lack of incentive for litigation;

· a contended lack of record for the accounting rules set out for government loans and damage awards (Appendices B and C, respectively);

· contended flaws in the analysis of the benefit to ratepayers from surcharging compared to ratebasing;

· contended departure from historical practice of a case-by-case approach; and

· lack of clear indication that rules are to have prospective effect only.

Upon review, some of the foregoing comments prompted changes in the version of the Proposed Decision that had been mailed on August 3, 2010.

In recognition that the immediate placement of contamination proceeds arising from damage awards, settlements, government order and insurance into CIAC sub-accounts would needlessly reduce rate base under several circumstances, such as during the lapse of time before the replacement plant goes into service or before expenditures of contamination proceeds are made for operation and maintenance or for cost increases, the decision has been changed to provide for the placement of those particular proceeds first into a memorandum account from which transfers can be made to the appropriate CIAC sub-account when and as expenditures of those proceeds occur and are approved to be transferred. (See above, at section 5.3, and below at Ordering Paragraph 4). Since federal and local grants and government loans normally are more project specific, with less time passing between and receipt and expenditure, the decision continues to provide for direct placement of receipts in a 265 sub-account without the intermediate step of recordation in a memorandum account. (See above, at sections 5.1 and 5.2, and below, at O.P. 3)

In response to IOU concerns about the likelihood of receiving a risk premium as an incentive in cost-of-capital proceedings, the decision was revised to change the standard to be applied from "unique and exceptional risk" to "above normal risk."

While the mailed decision did not transmute the obligation to serve into an automatic obligation to sue, as feared in some of the IOU comments, express language has been added above in section 5.5.1 confirming that a water IOU's selection of a particular response to a contamination event is a matter of reasonable business judgment.

In response to the utilities' comment that the rules contained in mailed Appendices B and C had no basis in the record, the decision has been modified to provide for the proceeding to remain open for comments and, if needed, one or more workshops to be conducted for the limited purpose of considering rules appropriate for the accounting of contamination proceeds from government loans, damage awards, settlements, government order or insurance as CIAC. The decision also has been changed in section 5.7 above to make it clear that it is to have prospective effect only.