15. Adopted Return on Equity

No one can precisely determine a perfectly correct return: we rely on the wide ranges of the models and our own best judgment to fulfill our regulatory obligation of adopting a just and reasonable return. After considering the evidence on the ongoing uncertainty of market conditions and trends, creditworthiness, interest rate forecasts, quantitative financial models, additional risk factors, and size and access to the financial markets, as presented by the parties and by applying our informed judgment, we could adopt a return on equity within the range of 10.00% and 10.40%. We find that 10.20% is a reasonable return on equity for these companies in these times. We find that the variations in size, equity ratio, and operational differences amongst Applicants cannot be precisely calculated to derive a numeric adjustment to this return. As discussed in Section 16 below, none of the Applicants was persuasive that they had derived a reasonable measurement of unique risk warranting any additional premium over a market rate of return. We have not previously quantified the impact of a Water Revenue Adjustment Mechanism and we again find that the only recommended adjustments in the record are arbitrary-25 basis points by DRA and none by Applicants.

San Jose is by far the largest of the group and the only one listed on a major stock exchange. As discussed in Section 17 below, we move it into the group of the large three multi-district Class A companies for its next review of rate of return. Valencia is the smallest in the group, but up to now, it has a much larger equity ratio which substantially raises the cost of capital imposed on ratepayers although it provided Valencia with the least liquidity risk. As discussed in Section 17, we allow Valencia to file its next cost of capital proceeding concurrently with its next general rate case.