8. Assignment of Proceeding

John A. Bohn is the assigned Commissioner and Christine M. Walwyn is the assigned ALJ in this proceeding.

1. By letter dated May 4, 2009, the Commission's Executive Director granted Great Oaks permission to delay submitting its general rate case application from July 1, 2009 to September 1, 2009.

2. Great Oaks submitted an updated and corrected application on October 19, 2009. The primary change in this application is the reflection of an interim rate increase of 1.75%, subject to refund, granted by Advice Letter 196C-W, effective September 1, 2009.

3. Great Oaks failed to timely provide its customers written notice of its request to raise rates, as required by Rule 3.2(d) of our Rules of Practice and Procedure. Great Oaks later provided this notice between November 5 and December 17, 2009.

4. Great Oaks' water system was last inspected by the California Department of Public Health in July 2009 and our record reflects that between 2006 and September 2009 Great Oaks has been in compliance with all state primary drinking standards and does not have any violations.

5. Great Oaks has not been warning its customers of a drought or helping them prepare to significantly reduce their consumption.

6. DRA correctly uses the Rate Case Plan methodology of D.07-05-062 to forecast sales for residential, multifamily, and business customers.

7. DRA's sales forecasts for industrial, public authorities, private landscaping, schools, agricultural, and private fire protection services use the "best available data" and apply the proper forecasting methodology.

8. Great Oaks' proposed increase in the reconnection charge from $10.00 to $25.00 during regular business hours and from $15.00 to $40.00 at other than regular working hours is reasonable and is not projected to have a significant impact on low-income customers; DRA intends to monitor the actual impact on low income customers as part of its conservation rate design review.

9. Great Oaks' projection of unaccounted for water at 4.04% of water sales is reasonable.

10. DRA's projections of purchased power expenses and groundwater charges are directly tied to our adopted sales forecast.

11. Since Great Oaks' last general rate case, its subsidiary Great Oaks LLC purchased an office building and the utility rents 1/6 of the building for utility operations.

12. We find that Great Oaks should be allowed to use its existing employees to pursue the Santa Clara Valley Water District litigation over the coming GRC period because its General Counsel, in consultation with its Chief Executive Officer, has been successful at the trial court level in the litigation and because all net benefits will be immediately passed through to its customers if the utility is ultimately successful. We recognize that normal utility operations do not support two full-time attorney positions, and we will closely review this issue in the next GRC proceeding.

13. Great Oaks has not adequately justified its request for an additional field technician.

14. In its next general rate case application, Great Oaks should provide a comprehensive showing to support the rental expense it requests and to establish that it has fully complied with all Commission accounting and reporting requirements in its transactions with its subsidiary Great Oaks LLC.

15. Great Oaks does not adequately support its request for an increase in rate case expenses and uncollectibles.

16. DRA's recommendations for rate case expenses and uncollectibles are reasonable.

17. Great Oaks' tariff pages implementing Resolution W-4534 specifically require that any expense eligible for memorandum account treatment must be recorded on a monthly basis. Great Oaks has not recorded any expenses into this memorandum account.

18. The Commission has authorized the establishment of memorandum accounts when projected costs and/or ratepayer benefits are uncertain.

19. Great Oaks' recommendations for $1,156,392 in test year depreciation expense and a net rate base of $11,069,738 are very close to DRA's recommendations and should be used for ratemaking purposes.

20. Great Oaks' Department of Motor Vehicle license fees and $533 "payroll expense" are not taxes.

21. Current state and federal payroll tax rates should be used in tax calculations for ratemaking purposes.

22. Great Oaks does not provide sufficient support for its recommended Ad Valorem tax amount of $223,013. DRA's recommendation of $177,500 is adequately supported and we find it reasonable.

23. Interest expense should be imputed for ratemaking purposes if the Commission imputes a debt component in its cost of capital determination.

24. DRA's rate design proposal to collect 25% of the fixed costs in the meter charge and the remaining revenue requirement in commodity rates is reasonable and consistent with the Best Management Practices established by the California Urban Water Conservation Council.

25. A conservation rate design will advance our Water Action Plan conservation objectives.

26. We find the rate differentials between tiers in DRA's conservation rate design proposal too high given the limited data and initial implementation.

Conclusions of Law

1. We should deny Great Oaks' August 20, 2010 "Motion to Reopen Record for Limited Purpose of Updating and Revising Water Sales Data and Addressing Conservation Water Revenue Adjustment Mechanisms" as the relief requested would violate:

(a) the Rate Case Plan's adopted procedure for ratemaking adjustments during the Rate Case Plan's transition period and for updates during the scheduled proceeding;

(b) The interim relief authority granted Great Oaks in Advice Letter 196C-W; and

(c) The scope of this application.

2. We should deny Great Oaks' October 12, 2010 "Motion to Reopen the Record for Limited Purpose of Admitting Evidence Relevant to Water Sales Forecasts and Conservation Issues" as the relief requested would violate the Rate Case Plan's adopted procedure for updates during the scheduled proceeding and Great Oaks has not met the standards established in the Rate Case Plan for an extraordinary circumstance that would warrant the Commission deviating from its normal procedures.

3. Great Oaks' water system and water quality is in compliance with the requirements of the California Department of Public Health.

4. Santa Clara Valley Water District (SCVWD) does not have authority to order mandatory conservation restrictions for Great Oaks Water Company and its directives do not impose a "government mandated production limitation" as defined in D.07-05-062's Rate Case Plan at Appendix A.

5. We should adopt DRA's sales forecasts for residential, multifamily, business, industrial, public authorities, private landscaping, schools, agricultural, and private fire protection services.

6. Great Oaks has not met its burden of proof to justify its proposed salary levels for employees.

7. DRA's use of its October 20, 2009 Compensation Per Hour Annual Rate of Change memorandum to adjust Great Oaks' 2009 base salaries for employees by 0.4% and then escalate test year salaries by 2.3% is reasonable and should be adopted.

8. Under the terms of Resolution W-4534, Appendix C to this decision, Great Oaks should not include in its revenue requirement any costs related to its SCVWD litigation. We find good cause exists, however, to allow Great Oaks to use its existing employees to pursue the SCVWD litigation over the coming GRC period.

9. Resolution W-4534 remains in force for all SCVWD litigation, to include the lead case, Case No. 109CV146018 (amended) and all subsequent related cases, and requires that if Great Oaks is ultimately successful it must immediately file an advice letter to pass-through the net benefits to its ratepayers.

10. All outside services litigation expenses related to the SCVWD litigation should be removed from Great Oaks' revenue requirement.

11. An adjustment to management salaries for ratemaking purposes should be made to reflect management time spent on non-utility property management. Reasonable disallowances are:

12. Recognizing that normal utility operations do not support two full-time attorney positions, the Commission should closely review management staffing levels in the next GRC proceeding. Great Oaks should bear the burden when it requests inclusion of two full-time attorney positions in utility rates, to provide a comprehensive showing of its two full-time attorneys' time spent on utility activities, non-utility activities as well as time spent on all litigation on behalf of Great Oaks or on litigation which purpose is to advance Great Oaks' managers' or its ratepayers' interests. Great Oaks should provide DRA with a full description of all litigation involving Great Oaks in the next GRC.

13. Based on Commission policy, as affirmed by the California Supreme Court, dues, donations, and contributions are not recoverable in rates. Therefore, Great Oaks' charitable and political contributions and the expenses included in its "dues and subscriptions" should not be recovered from ratepayers.

14. Great Oaks should be authorized to file by a Tier 2 advice letter to establish a memorandum account for outside legal expenses related to litigation with the City of San Jose over its service territory. This memorandum account should have a cap of $225,000 for expenses, require expenses to be recorded on a monthly basis, and require ratemaking review when Great Oaks seeks recovery. Great Oaks should bear the burden when it requests recovery of the recorded costs, to show that separate recovery of the types of costs recorded in the account is appropriate, that it acted prudently when it incurred these costs, and that the level of costs is reasonable. Great Oaks may seek recovery of the costs in this memorandum account in its next GRC or through a Tier 3 Advice Letter filing.

15. Great Oaks should be allowed to submit a Tier 2 advice letter to recover the costs of the County View Tank when the project is completed and it is used and useful. Construction costs should be capped at $385,000 and Great Oaks should be allowed to recover the costs from future customers through a service fee.

16. Great Oaks' ratemaking proposal for developer/customer funded projects is in compliance with Tariff Rule 15.

17. DRA has not presented sufficient cause for the Commission to deviate from the ratemaking methodology adopted in D.89-11-058 for computing California Corporate Franchise Tax.

18. DRA has properly calculated the Domestic Production Activities Deduction for Great Oaks.

19. We should adopt DRA's conservation rate design proposal for single family residential customers with the following modification: the rate differential between Tiers 1 and 2 should be 8% and the rate differential between Tiers 2 and 3 should be 15%.

20. Great Oaks should meet and confer with DRA regarding the details of the customer data that will be tracked and reported during the coming GRC period for purposes of assessing the effectiveness of the conservation rate design and should then be allowed to request a memorandum account to track the estimated costs.

21. Great Oaks should be authorized a Monterey-style water revenue adjustment mechanism that tracks and corrects for the difference between revenue collected under conservation rates and revenue that would have been collected under uniform rate design. Great Oaks' supply cost balancing accounts should not be converted to full-cost balancing accounts since there is no full decoupling of revenues from sales.

22. Great Oaks should be allowed to file a Tier 2 advice letter requesting memorandum account treatment for conservation expenses if it first meets and confers with DRA and in its advice letter proposes specific programs and expenditure caps. Great Oaks Water Company will bear the burden when it requests recovery of the recorded costs, to show that separate recovery of the types of costs recorded in the account is appropriate, that the utility acted prudently when it incurred these costs and that the level of costs is reasonable.

23. Based on the Verification Report submitted on August 20, 2010 by the Division of Water and Audits, attached to this decision as Appendix D, and the comments filed by parties, good cause exists to further investigate Great Oak's actions and whether fines should be imposed. Therefore, the Commission should open an OII to further review whether Great Oaks' actions in not informing the Commission and its staff that it was withholding payment to SCVWD of the pump tax revenues collected from its customers violated any of the following: the Commission's Rule 1.1., our Uniform System of Accounts (USOA) for Class A Water Companies, our Rate Case Plan, or Public Utilities Code Sections 451 and 794. As part of the OII Great Oaks should be ordered to show cause why penalties should not be imposed for any violations.

24. Based on the Verification Report and comments:

ORDER

IT IS ORDERED that:

1. Great Oaks Water Company's August 20, 2010 and October 12, 2010 motions to reopen the record are denied.

2. All motions not addressed in this decision are denied.

3. The revenue requirement and rate tables to today's decision at Appendices A and B are adopted.

4. Great Oaks Water Company is authorized to file in accordance with General Order 96, and to make effective on not less than five days' notice, revised tariff sheets that are consistent with the test year July 1, 2010 - June 30, 2011 revenue requirement and adopted rates at Appendices A and B of this decision. The revised tariff sheets shall include the conservation rate design adopted in this decision and shall apply to service rendered on and after their effective date.

5. Great Oaks Water Company is authorized to request a surcharge to true-up the interim rates authorized in Advice Letter 196C-W, effective September 1, 2009, to the final rates adopted here using the methodology set forth in Decision 07-12-055 and to be collected over a twelve-month period. The tariff implementing the surcharge may be included in the filing authorized in Ordering Paragraph 4.

6. Great Oaks Water Company (Great Oaks) is authorized to file by a Tier 2 advice letter to establish a memorandum account for outside legal expenses related to litigation with the City of San Jose over its service territory. This memorandum account shall have a cap of $225,000 for expenses, require expenses to be recorded on a monthly basis, and require ratemaking review when Great Oaks seeks recovery. Great Oaks shall bear the burden when it requests recovery of the recorded costs, to show that separate recovery of the types of costs recorded in the account is appropriate, that it acted prudently when it incurred these costs, and that the level of costs is reasonable. Great Oaks may seek recover of the costs in this memorandum account in its next General Rate Case or through a Tier 3 Advice Letter filing.

7. Great Oaks Water Company (Great Oaks) may submit a Tier 2 advice letter to recover the costs of the County View Tank when the project is completed and it is used and useful. Construction costs are capped at $385,000 and Great Oaks shall recover the costs authorized by the Commission from future customers through a service fee.

8. Great Oaks Water Company (Great Oaks) may file a Tier 2 advice letter requesting memorandum account treatment for conservation expenses if it first meets and confers with the Division of Ratepayer Advocates and in the advice letter proposes specific programs and expenditure caps. Great Oaks shall bear the burden when it requests recovery of the recorded costs, to show that separate recovery of the types of costs recorded in the account is appropriate, that the utility acted prudently when it incurred these costs and that the level of costs is reasonable.

9. Great Oaks Water Company (Great Oaks) shall file a Tier 2 advice letter with implementing tariff pages to create a Monterey-style water revenue adjustment mechanism that tracks and corrects for the difference between revenue collected under conservation rates and revenue that would have been collected under uniform rate design. Great Oaks' supply cost balancing accounts shall not be converted to full-cost balancing accounts since the water revenue adjustment mechanism approved here today does not fully decouple revenues from sales. The effective date of this advice letter shall be within 90 days of this decision and shall be the same date as the effective date of Great Oaks' conservation rate design. Great Oaks shall meet and confer with Division of Ratepayer Advocates and include in its request the details of the customer data that will be tracked and reported during the coming General Rate Case period for purposes of assessing the effectiveness of the conservation rate design and a request for a memorandum account to track the estimated costs.

10. For escalation years 2011/2012 and 2012/2013, Great Oaks Water Company shall file Tier 1 advice letters in conformance with General Order 96-B proposing new revenue requirements and corresponding revised tariff schedules as set forth in the Commission's Rate Case Plan (Decision 07-05-062) for Class A Water Utilities and shall include appropriate supporting workpapers. The Advice Letter for escalation year 2011/2012 must be filed no later than May 16, 2011 and the Advice Letter for escalation year 2012/2013 must be filed no later than May 16, 2012. The revised tariff schedules shall take effect no earlier than July 1, 2011 and July 1, 2012, respectively, and shall apply to service rendered on and after their effective dates. The proposed, revised revenue requirements and rates shall be reviewed by the Commission's Division of Water and Audits. The Division of Water and Audits shall inform the Commission if it finds that the revised rates do not conform to the Rate Case Plan, this order, or other Commission decisions, and if so, reject the filing.

11. Great Oaks Water Company shall file its next general rate case by application pursuant to the schedule established in Decision 07-05-062.

12. Based on the Verification Report submitted on August 20, 2010 by the Division of Water and Audits, attached to this decision as Appendix D, and the comments filed by parties, good cause exists to further investigate Great Oak Water Company's (Great Oaks) actions and whether fines should be imposed. Therefore, the Commission's Consumer Protection and Safety Division shall prepare an Order Instituting Investigation (OII) to further review whether Great Oaks' actions in not informing the Commission and its staff that it was withholding payment to Santa Clara Valley Water District of the pump tax revenues collected from its customers violated any of the following: the Commission's Rule 1.1., our Uniform System of Accounts for Class A Water Companies, our Rate Case Plan, or Public Utilities Code Sections 451 and 794. The draft OII shall order Great Oaks to show cause why penalties should not be imposed for any violations.

13. Great Oaks Water Company must advise by a letter to the directors of the Division of Water and Audits and the Division of Ratepayer Advocates, with copies sent to the branch chief of the Utility Audit, Finance and Compliance Branch and the service list of this proceeding or its subsequent general rate case, within 60 days when it adopts any new accounting approaches, unusual accounting treatment or items, and changes to relevant procedures and records, especially any event involving a change that represents a difference of 10% or more between the new accounting approach or treatment and the prior accounting approach or treatment.

14. The shareholders of Great Oaks Water Company shall be solely responsible for all interest, penalties, and legal expenses associated with the nonpayment of groundwater production charges.

15. In accordance with Resolution W-4534, if Great Oaks is ultimately successful in its Santa Clara Valley Water District litigation, it must immediately file by Advice Letter to pass-through the net benefits to its ratepayers.

16. This proceeding is closed.

This order is effective today.

Dated November 19, 2010, at San Francisco, California.

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