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COM/CJS/acr Date of Issuance 6/27/2012

Decision 12-06-040 June 21, 2012

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of California-American Water Company (U210W) for Authorization to Implement the Carmel River reroute and San Clemente Dam Removal Project and to Recover the Costs Associated with the Project in Rates.

Application 10-09-018

(Filed September 22, 2010)

(See Appendix 3 - Service List for Appearances)

DECISION AUTHORIZING CALIFORNIA-AMERICAN WATER COMPANY TO IMPLEMENT THE CARMEL RIVER REROUTE AND SAN CLEMENTE DAM REMOVAL PROJECT

TABLE OF CONTENTS

APPENDIX 1 - July 2011 Updated Carmel River Reroute and San Clemente Dam Removal Project Estimate

APPENDIX 2 - Balancing Account Amortization and Customer Surcharge

APPENDIX 3 - Service List

DECISION AUTHORIZING CALIFORNIA-AMERICAN WATER COMPANY TO IMPLEMENT THE CARMEL RIVER REROUTE AND SAN CLEMENTE DAM REMOVAL PROJECT

1. Summary

We approve today California-American Water Company's (Cal-Am) request to implement a joint ratepayer/public funded Carmel River Reroute and San Clemente Dam Removal Project (Project) expected to cost $83 million in partnership with the California State Coastal Conservancy (Conservancy) and the National Marine Fisheries Service. Of the $83 million Project, Cal-Am will incur $49 million, and the Conservancy will secure $34 million in public funds, $19.5 million of which has been committed or nearly committed as of May 25, 2011.1

The goal of the Project is to eliminate the San Clemente Dam's (Dam) seismic safety hazard, provide comprehensive restoration of the natural character and function of the valley bottom, and restore steelhead fish passage. This will be accomplished by permanently bypassing a portion of the Carmel River by cutting a channel between the Carmel River and San Clemente Creek, upstream of the Dam. The bypassed portion of the Carmel River will be used as a disposal site for the accumulated sediment, and the Dam will be removed.2

This Project is a laudatory example of innovative thinking as it provides a creative solution to a host of problems. It is a historic opportunity to protect people from potential flood damage, meet earthquake safety guidelines, protect endangered species, and provide significant environmental benefits to the public and wildlife. Due to a ground-breaking public/private partnership, this Project will not cost Cal-Am's customers any more than the least-cost option of dam buttressing. We commend all of the entities that worked diligently to put this inventive Project together for the Commission's review. We hope it will serve as an example to other utilities.

We find the application reasonable, in part, because the approach taken to remove the dam is both exhaustive and innovative. Seismic safety is a primary concern, and the ability to re-route a river to ensure safe removal of the facility yields long-term ratepayer gains for acceptable expense. We recognize that this type of project does not lend itself to the typical application process; however unusual, the introduction of public-private partnerships to mitigate additional expenses to the ratepayer enables us to fully consider the project in the unique circumstances of the Monterey service territory.

We also authorize ratepayer recovery of Cal-Am's funding of the Project to be paid through a surcharge on customers' bills over the next 20 years. Cal-Am initially estimated the surcharge, which would vary each year, will be approximately $3.34 per month for the average residential customer using 70 billing units3 of water per month at a three-person household.4 A revised calculation of customer impact based on the billing surcharge percentage method proposed by Cal-Am in its initial application shows a surcharge of approximately 6.70%, or $2.55 per month for an average residential customer. Note that this method preserves the first tier of residential rates intact with no surcharge.5 The Project is expected to begin in September of 2012 and be completed three years later. The Project is a result of joint collaboration of the California state legislature, federal, state, county, and special districts, and the California Public Utilities Commission (Commission or CPUC) commitment to increase public and earthquake safety, improve environmental protection, and protect watershed and water resources. This project achieves these goals in a manner consistent with the CPUC's obligation that water utilities such as Cal-Am provide safe, reliable service at just and reasonable rates. Signatories of this collaboration included House of Representative Sam Farr, State Senator Abel Maldonado, Assembly Member Bill Monning, former California Public Utilities Commissioner John Bohn, Monterey County Board of Supervisors, California Department of Natural Resources, Monterey Peninsula Water Management District, National Oceanic and Atmospheric Association, National Marine Fisheries Service, California Department of Fish and Game, California State Coastal Conservancy, Monterey County Resource Agency, and Cal-Am.

In this decision we also address Cal-Am's request for rate recovery of approximately $26 million for costs incurred over the last decade in pursuing a proposal to buttress, or thicken, the existing dam structure to satisfy the California Department of Water Resources Division of Safety of Dams seismic safety concerns regarding the Dam's ability to withstand probable maximum flooding and maximum credible earthquakes. We find that Cal-Am acted prudently in proposing this option to address the dam's seismic safety issues, protect ratepayers, and protect watershed and water resources.

1 Exhibit 3, Chapman Rebuttal Testimony at 8.

2 Exhibit 1, Schubert Direct Testimony at 11.

3 A billing unit is 10 cubic feet.

4 Exhibit 1, Stephenson Testimony at 22 and 23.

5 Cal-Am Application, Appendix 9 at 3-4.

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