A0807009 O'Donnell Comment Dec. Adopting Test Year 2009/10 Revenue Requirement and Rates for the Fontana Water Company Division of San Gabriel Valley Water Company

6. Miscellaneous Expense-Litigation Expenses Not Related to Water Quality

SGV's estimate for this portion of administrative and general expenses, which is proposed in the settlement, was estimated based on a five-year average (2003-2007) of recorded costs. DRA did not oppose SGV's estimate prior to the settlement.

6.1. Positions of Parties

COF states that a major portion of the expenses for the five-year period SGV's estimate was based on was primarily due to one case. COF states the case concerned a class action antitrust law suit (Slemmer suit or suit) brought by a group of shareholders of Fontana Union Water Company (FUWC) against FUWC, Cucamonga County Water District, SGV, Kaiser Venture LLC, two of SGV's officers and four other individuals (see Section 8 below). ⁴ At that time, SGV owned 34.54% of FUWC and two of SGV's officers served as directors and officers of FUWC. COF says this was strictly a shareholder matter, between minority and majority shareholders of FUWC. COF states that this was not a recurring expense, was inappropriate for recovery from ratepayers, and should be excluded from the five-year average. COF's proposed adjustment would reduce annual expenses by $202,300 (2007 dollars).

FUSD agrees with the position taken by COF.

SGV says the expenses for the settlement of the Slemmer suit were legitimate expenses to protect the water rights SGV uses to serve its customers and the use of a five-year average has been previously approved by the Commission.

6.2. Discussion

The Slemmer suit was resolved by the settlement reached in that suit. The record does not indicate that similar types of suits are likely to recur on a regular basis. Thus, expenses for the suit should be excluded from the five-year average because the expenses are one-time non-recurring expenses. COF's recommendation of a $202,300 (2007 dollars) reduction in the expense amount adopted in the settlement is adopted. The settlement, without this alternative term, is not in the public interest.

⁴ FUWC is a water company owned in part by SGV. It serves no customers. Its principal assets are water rights, some of which are used by SGV.