4. The Settlement

On June 29, 2009, Golden State and DRA filed a joint motion to adopt the settlement addressing various issues in the proceeding.² The motion stated that Golden State and DRA convened a settlement conference during the period April 20-24, 2009, with notice and opportunity to participate provided to all parties. Representatives of Golden State and DRA attended and participated in the entire settlement conference. Representatives of Cypress participated in the first day of the settlement conference. Neither Cypress nor the Cities signed the settlement and neither filed a protest of the settlement. The settlement discussions continued through the evidentiary hearing portion of the proceeding, which was May 11-14 and May 18, 2009. The settlement is comprised of two exhibits: Exhibit 1 addresses all settled issues relating to plant, sales, rate base, labor, administrative and general expenses, operation and maintenance, and taxes; Exhibit 2 relates to conservation rate design and related decoupling mechanisms.³ In the paragraphs below, we discuss some of the more significant elements of the settlement agreement.

Plant: Overhead Rates - The parties to the settlement (DRA and Golden State) agreed to overhead rates of 26.37% in Region II and 17.80% in Region III for 2008.⁴ The parties agreed to recalculated overhead rates of 26.88% in 2009, 31.05% in 2010, and 33.16% in 2011. Parties agreed that overhead rates would not apply to land purchases, and that the overhead rates should apply to all regions, general office and Bear Valley Electric System (BVES). The settling parties also request that any changes adopted by the Commission in how overhead is accounted for, be applied to each of Golden State's regions, general office and BVES.

Plant: Contingency Rates - The parties compromised and agreed to use a 7.5% contingency rate for all construction projects and a 2.5% contingency rate for all blanket projects and all projects in the general office and Centralized Operations Support (COPS).

Plant: Capital Budgets for Region II and Region III - The table below illustrates the parties' agreed-upon capital budgets.

Table 1 (millions)

Plant: Capital Budgets for general office and COPS - The parties' total stipulated amount for general office is $11,512,950 and $778,100 for COPS. These figures represent agreement on some figures and compromise positions on others.

Plant: Capital Budget Advice Letter Treatment - The parties agreed that Golden State should be authorized to file advice letters seeking authorization to include in rate base, upon completion of the project and when it becomes used and useful, the actual costs of the plant additions for five specific projects and to receive corresponding rate adjustments for the additional rate base. Parties agreed to request that the final decision include an Ordering Paragraph authorizing each and every advice letter. The projects are:

· 0.5 million gallon reservoir and transmission main, Johnson's Pasture (Region III)

· Stabilize Eaglecliff tank foundation (Region III)

· Site for 2.5 million gallon reservoir (Region III)

· Install Lone Pine Reservoir (Region III)

· Sheep Creek Reservoir (Region III)

Sales: Customer Growth - The parties used the new methodology in the Rate Case Plan (RCP) to forecast customer growth. The table below illustrates the agreed-upon customer figures by region and year.

Table 2

Sales: Per Customer - The parties used a five-year average to forecast customer usage for all customer classes other than residential and commercial. Parties compromised and revised their respective models using the most recent weather and consumption data and considered the effects of conservation in the sales forecast. The table below illustrates the
agreed-upon sales per customer.

Table 3 (Ccf)⁵

Sales: Water Loss - The parties' agreed-upon water loss percentages reflect compromise positions and considered issues of residential and commercial water sales. The water loss percentages are 8.60% for Region II and 7.55% for Region III.

Sales: Supply Sources - The table below illustrates the parties' stipulated sources of supply in the various customer service areas. The parties used a combination of historical usage, expected developments, and constraints on systems to determine the level of production from wells and purchased water.

Table 4 (Ccf)

Sales: Supply Cost - The parties agreed to use Golden State's methodology to forecast purchased water, purchased power and pump taxes costs.

Labor: Region II and III, general office and Customer Service Center (CSC), and COPS - The table below illustrates the settlement between the parties on new positions.

Table 5

Conservation Rate Design: Three-tier rate structure - Golden State and DRA agree to refine the conservation rate design settlement adopted in D.08-08-030. Golden State and DRA agree to a three-tier increasing rate structure for residential customers instead of the original two-tier structure. The table below illustrates the three-tier rate structure:

Table 6

Golden State and DRA agree that the rate design for non-residential customers should meet Best Management Practice (BMP) 1.4 (formerly BMP 11) 30/70 threshold where 30% of non-residential customers' revenue requirement is recovered through the service charge and 70% is recovered through the volumetric rate. Parties agree that the conservation rate design and related decoupling mechanisms discussed below are pilot programs that will be reviewed in the next GRC.

Conservation Rate Design; Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) - Golden State and DRA agree to have two WRAMs, one for residential customers and one for non-residential customers that will be zeroed out every 12 months. Over- or under-collection will be refunded to customers as a credit or collected via a surcharge on the volumetric rate. The MCBA will track the difference between Actual Variable Costs and Adopted Variable Costs for purchased water, purchased power and pump tax.

On October 6, 2009, Golden State and DRA filed a supplement to the settlement stating that a portion of the settlement agreement had been inadvertently omitted. The supplemental settlement provides $375,000 for Golden State to hire a consultant to conduct well replacement studies in 2010. The two parties agree that the cost of the consultant will be expensed in the year the study is conducted, the cost of the study will be tracked in a balancing account and recovery will be based on the actual prudently incurred costs at the time of the next general office GRC.

To the extent that individual items related to plant, labor expenses, etc., were not settled, they are discussed and resolved later in the decision.

² On April 29, 2010, Golden State and DRA filed a joint motion for adoption of a supplement to the settlement that resolved the General Office allocation for the City of Torrance contract issue and the DRA consultant fees in the reopened proceeding.

³ The settlement agreement states that Exhibit 1 relates to conservation rate design and Exhibit 2 relates to all other settled issues; however, the exhibits are reversed.

⁴ These rates were adopted in prior rate case decisions.

⁵ Ccf = hundred cubic feet.