Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding.

Findings of Fact

1. Cal-Am's Monterey District is and has been experiencing a water supply shortage.

2. Well ASR-4 is necessary to ensure that Cal-Am will be able to divert its full allocation under Permit 208008C from the Carmel River for storage in the
Seaside Basin.

3. The costs of Well ASR-4 are reasonable, and it is reasonable to expend the additional increment necessary to potentially expedite the in-service date of the well.

4. The Agreement with the District reasonably meets Cal-Am's Carmel River mitigation obligations.

5. DRA supports Well ASR-4 and no party opposed the Agreement with the District.

6. No evidentiary hearing was necessary for this phase of this proceeding.

Conclusions of Law

1. Cal-Am has met its burden of justifying the construction of Well ASR-4, including the costs of an expedited schedule.

2. The projected expedited costs of Well ASR-4 are reasonable, and the ratemaking steps proposed by Cal-Am should be approved.

3. The Agreement with the District is reasonable, and recovery of costs through the ratemaking surcharge proposed by Cal-Am should be approved.

4. Issues related to the District's user fee are not addressed by today's decision.

5. This decision should be effective today.

6. This proceeding should remain open.

ORDER

IT IS ORDERED that:

1. California-American Water Company's (Cal-Am) request for authorization to construct Well ASR-4 is granted, and, if feasible, Cal-Am shall accomplish such construction on an expedited schedule with a target in-service date for the well in 2012.

2. California-American Water Company (Cal-Am) is authorized to file a Tier 1 Advice Letter to create the Aquifer Storage and Recovery Project Phase 2 memorandum account, and to record in this account the reasonable costs, not to exceed $4.7 million plus interest calculated at the 90-day commercial paper rate, for Well ASR-4 to be constructed at the Seaside Middle School site. Upon completion of construction and placing Well ASR-4 into service, Cal-Am is authorized to file a Tier 2 advice letter to move the costs properly recorded into rate base. Any costs for Well ASR-4 that exceed the cap of $4.7 million may be presented for Commission reasonableness review and ratemaking consideration in a Tier 3 advice letter or in the next general rate case.

3. California-American Water Company (Cal-Am) is authorized to enter into the Interim Implementation Agreement for 2011-2012 Carmel River Mitigation Program, with a term through December 2014, with the Monterey Peninsula Water Management District (District). Annual billings from the District to
Cal-Am pursuant to this Agreement and to be recovered from ratepayers shall not exceed $1.6 million for 2012, $1.76 million for 2013, and $1.94 million for 2014. Future payments for all such billings from the District pursuant to this agreement may be recorded in the balancing account and surcharge authorized in Advice Letter 935. Cal-Am is also authorized to file a Tier 1 advice letter to transfer payments pursuant to the Agreement since its initiation date of May 24, 2011, and recorded in the Cease and Desist Order Compliance memorandum account, from that account to the Advice Letter 935 balancing account and surcharge.

4. California-American Water Company is authorized to collect a concurrent surcharge under Advice Letter 935 for amortization of the previously recorded and transferred costs, with a resulting total surcharge of 15.37% from
October 2012 to March 2013. Thereafter the surcharge authorized in Advice Letter 935 shall expire and the only surcharge shall be to recover the payments to the Monterey Peninsula Water Management District authorized by today's decision, at a rate of 6.03%.

5. California-American Water Company must present in its next general rate case a detailed ratemaking analysis of any costs from the Monterey Peninsula Water Management District (District) sought to be included in revenue requirement. Such analysis must include justification for and reasonableness demonstration of all direct costs, indirect allocations, management and administrative costs, and overhead allocations. A detailed showing that the costs proposed to be included in revenue requirement are not also recovered by the District through its other funding sources will also be required.

6. No later than August 1, 2012, California-American Water Company may file and serve a revised proposal for Aquifer Storage Phase 1 costs. The assigned Administrative Law Judge may reschedule this filing date for good cause shown.

7. This proceeding should remain open to address the remaining issues.

This order is effective today.

Dated June 21, 2012, at San Francisco, California.

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