3. The Settlement

The settlement between SGV and DRA addresses all forecast issues, but does not address issues related to the reasonableness of post-2002 plant additions.

Rule 12.1(d) of the Commission's Rules of Practice and Procedure provides that:

The Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest.

This is the standard of review for this settlement. SGV and DRA are the only parties to the settlement.

SGV provided an application and exhibits that explained its request for a rate increase in detail. DRA provided its analysis of the application indicating that it agreed with some of SGV's estimates and disagreed with others. The settlement indicates that most of the differences were resolved by use of more recent data, correction of calculation errors, one party's acceptance of the other estimates or calculation methodologies, and compromises between the parties. The overall result lies between the initial positions of SGV and DRA. The settlement also resolves some issues raised by the other parties. The settlement, with the alternative settlement terms as discussed later in this decision, is reasonable in light of the whole record.

The settlement with the alternative settlement terms does not violate any statute or Commission decision or rule. Thus, the settlement, with the alternative settlement terms, is consistent with law.

SGV represents the interests of its shareholders. DRA represents the interests of SGV's ratepayers. Thus, the settling parties fairly represent the affected interests. However, COF and FUSD are also ratepayers. Their interests, to the extent they conflict with the settlement, are addressed later in this decision and result in some modifications to the settlement. The settlement, with the alternative settlement terms and the ratebase changes adopted herein as part of the reasonableness review of post-2002 construction projects, result in rates that are sufficient to provide adequate reliable service to customers at reasonable rates while providing SGV with the opportunity to earn a reasonable return. The alternative settlement terms provide the Commission with sufficient information to carry out its future regulatory obligations with respect to the parties and their interests. Thus, the settlement, with the alternative settlement terms, is in the public interest and is adopted.

There are number of forecast issues that are part of the settlement but are opposed by COF or FUSD. These will be dealt with next. After the forecast issues are addressed, the reasonableness review issues will be addressed.

Rule 12.4 of the Commission's Rules of Practice and Procedure indicates the steps the Commission may take in rejecting a settlement. In this instance, the Commission proposes alternative settlement terms. The alternative terms are included in Sections 6, 8, 9, 10, 14, 15 and 16 of this decision. In their comments on the Proposed Decision, the settling parties shall indicate whether they accept the alternative terms. If they do not accept them, they shall indicate the other relief they seek, pursuant to Rule 12.4(c).