III. Discussion and Public Interest

This is an All-Party Settlement Agreement. We approve all-party settlements provided the following criteria are present in addition to criteria applicable to all settlements, which we discuss below. All-party settlements must meet the following requirements:

· The Settlement must command the unanimous sponsorship of all active parties to the proceeding. Because Kerman and ORA are the only parties to this proceeding, this criterion plainly is met.

· The sponsoring parties must be fairly representative of the affected interests. The increase in rates Kerman proposes will affect its customers. ORA represents the interests of those customers and advocates for all customers.²

· No term of the settlement may contravene statutory provisions or prior Commission decisions. Nothing in the Settlement Agreement we approve contravenes statutory provisions or prior Commission decisions, and thus the settlement meets this criterion.

· The settlement must convey to the Commission sufficient information to permit it to discharge its future regulatory obligations with respect to the parties and their interests. The Settlement Agreement we approve sufficiently states the amount of the proposed revenues, revenue requirement, and rate design, as well as a stipulated rate of return so as to enable the Commission to fulfill its future regulatory obligations with respect to the parties and their interests.³

In addition to meeting the all-party settlement criteria, the parties must demonstrate that the settlement is reasonable in light of the whole record, is consistent with the law, and is in the public interest. In evaluating settlements, the Commission has recognized a strong public policy in California favoring settlement and avoiding litigation.⁴ We find that this Settlement Agreement satisfies all three requirements of Rule 51.1(e).

First, as ORA and Kerman note, the terms of the Settlement Agreement are reasonable in light of the whole record. The Settlement Agreement reduces test year expenses and rate base to levels within the ranges established by ORA and Kerman testimony. The reduction in depreciation rates for the four specified accounts also falls within the ranges of depreciation rates proposed by ORA and Kerman. A 10% intrastate rate of return is consistent with recent Commission Resolutions in Small Local Exchange Carrier (LEC) rate proceedings under General Order (GO) 96-A⁵ and also falls between the 9.12% rate recommended by ORA and the 12.25% rate recommended by Kerman. With the exception of measured rate business service, the record reflects no dispute with Kerman's proposed rate design. In fact, at the Public Participation Meeting held in Kerman on January 13, 2003, the customers in attendance supported Kerman's rate design proposal. ORA and Kerman stipulated that service complies with all of
GO 133-B service quality measurement standards that are applicable to companies Kerman's size. ORA confirmed that for the last five years only four informal minor service complaints were filed with the Commission and that all of these were resolved. Kerman and ORA believe that the Commission should find that Kerman's service quality is reasonable. We agree and will do so.

Second, the Settlement Agreement is consistent with the law. Consistent with Pub. Util. Code § 451, the Settlement Agreement will lead to rates that are just and reasonable. In addition, consistent with Duquesne Light Co. v. Barasch, 488 U.S. 299, 109 S.Ct 609, 102 L.Ed.#d 646 (1989), the rate design and the 10% intrastate rate of return established by the Settlement Agreement allow Kerman the opportunity to earn a reasonable rate of return.

Finally, the public interest supports adoption of the Settlement Agreement since the Settlement Agreement eliminates the uncertainty inherent in continuing to litigate contested issues while also providing for the resolution of those issues in a manner acceptable to all parties to the proceeding. The Settlement Agreement also eliminates the need for time-consuming litigation. Further, all terms of the underlying settlement lie within the range of proposals supported by the sworn testimony, which constitutes the evidentiary record of this proceeding.