ALJ/DUG/avs Date of Issuance 3/16/2011

Decision 11-03-005 March 10, 2011

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the matter of the application of Alco Water Service, (U206), (Alco) a California Corporation, for an order 1) authorizing it to increase rates for water service by $3,709,633 or 62.6% in test year 2010; 2) authorizing it to increase rates on July 1, 2011 by $1,752,844 or 18.2% and July 1, 2012 by $1,016,639 or 8.9% in accordance with Decision 08-11-035, and 3) adopting other related rulings and relief necessary to implement the Commission's ratemaking policies.

Application 10-02-006
(Filed February 1, 2010)

DECISION ON THE APPLICATION BY ALISAL WATER CORPORATION, DBA ALCO WATER SERVICE, FOR A GENERAL RATE CASE WITH A TEST YEAR 2010 AND ATTRITION RATE ADJUSTMENTS FOR 2011 AND 2012

TABLE OF CONTENTS

Title Page

DECISION ON THE APPLICATION BY ALISAL WATER CORPORATION, DBA ALCO WATER SERVICE, FOR A GENERAL RATE CASE WITH A TEST YEAR 2010 AND ATTRITION RATE ADJUSTMENTS FOR 2011 AND 2012 2 2

1. Summary 2 2

2. Standard of Review 2 2

3. Adopting a Proposed Settlement 3 3

3.1. Pertinent Commission Rules 3 3

3.2. Required Findings - Rules 12.1(d) and Rule 12.5 5 5

4. Summary of Test Year Settlement Agreement 6 6

5. Litigated Issues 7 7

5.1. Summary 7 7

5.2. New Wells and Pumps 8 8

5.2.1. Arsenic 15 15

5.2.2. Supply Adjustments 16 16

5.2.3. Conclusion 17 17

6. Need for Ongoing Independent Audits 18 18

6.1. Summary 18 18

7. Family Transactions 20 20

8. Office Equipment 24 24

8.1. New Diesel Equipment 25 25

8.2. Infrastructure Mapping 26 26

8.3. Office Equipment- Special Request # 5 27 27

9. Trucks 28 28

9.1. Summary - Equipment from G&L Leasing,
Trucks from T.R. Adcock, and Three New Trucks 28 28

9.2. Trucks from G&L Leasing 29 29

9.3. Trucks From T.R. Adcock 29 29

9.4. New Trucks 30 30

10. Cost of Capital 30 30

10.1. Summary 30 30

10.2. Legal Standard 31 31

10.3. Capital Structure 32 32

10.4. Cost of Long-Term Debt 34 34

10.4.1. Positions of the Parties 34 34

10.4.2. Discussion 35 35

10.5. The Cost of Equity 37 37

Title Page

10.5.1. Positions of the Parties 38 38

10.5.2. Discussion 38 38

11. Next General Rate Case 40 40

12. Procedural History 41 41

12. Comments on Proposed Decision 41 41

14. Assignment of Proceeding 42 42

Findings of Fact 42 42

Conclusions of Law 47 47

ORDER 50 50

DECISION ON THE APPLICATION BY ALISAL WATER CORPORATION, DBA ALCO WATER SERVICE, FOR A GENERAL RATE CASE WITH A TEST YEAR 2010 AND ATTRITION RATE ADJUSTMENTS FOR 2011 AND 2012

1. Summary

This decision adopts a proposed settlement between Alisal Water Corporation, dba Alco Water Service (Alco), and the Division of Ratepayer Advocates and it further resolves all outstanding litigated issues not otherwise addressed in the settlement. We adopt a cost of capital of 8.81% with a return of equity of 10.70%. Alco must file another general rate case application no earlier than a test year 2013. Finally, this decision institutes a ban on any transactions between the utility and any member of the owner's family.

This decision results in a rate increase. The adopted revenue requirement for test year 2010 is $8,141,291 which is an increase of $2,189,524, or 36.79%. This proceeding remains open to address one issue, a proposal for an advanced metering infrastructure.