STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 15, 2009 Agenda ID #8555

Ratesetting

TO PARTIES OF RECORD IN APPLICATION 08-07-009

This is the proposed decision of Administrative Law Judge (ALJ) Jeffrey P. O'Donnell, previously designated as the presiding officer in this proceeding. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Upon the request of any Commissioner, a Ratesetting Deliberative Meeting (RDM) may be held. If that occurs, the Commission will prepare and publish an agenda for the RDM 10 days beforehand. When the RDM is held, there is a related ex parte communications prohibition period. (See Rule 8.2(c)(4).)

The proposed decision includes the revenue requirement tables on which rates will be calculated but the tariff sheets showing such rates are not included. The tariff sheets will be included with the final decision.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 14 of the Commission's Rules of Practice and Procedure (Rules), accessible on the Commission's website at www.cpuc.ca.gov. Pursuant to Rule 14.3, opening comments shall not exceed 15 pages.

Comments must be filed either electronically pursuant to Resolution ALJ-188 or with the Commission's Docket Office. Comments should be served on parties to this proceeding in accordance with Rules 1.9 and 1.10. Electronic and hard copies of comments should be sent to ALJ O'Donnell at jpo@cpuc.ca.gov and assigned Commissioner. The current service list for this proceeding is available on the Commission's website at www.cpuc.ca.gov.

/s/ JANET A. ECONOME for

Karen V. Clopton, Chief

Administrative Law Judge

KVC:sid

Attachment

ALJ/JPO/sid DRAFT Agenda ID #8555

Ratesetting

Decision PROPOSED DECISION OF ALJ O'DONNELL (Mailed 5/15/2009)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of San Gabriel Valley Water Company (U337W) for Authority to Increase Rates Charged for Water Service by its Fontana Water Company Division by $12, 859,900 or 26.5% in July 2009, $1,726,300 or 2.8% in July 2010, and $1,679,400 or 2.7% in July 2011.

Application 08-07-009 (Filed July 1, 2008)

Best, Best & Krieger, LLP, by Kendall H. Macvey, Attorney at Law, for City of Fontana; Endeman, Lincoln, Turek & Heater, LLP, by James P. Allen, Attorney at Law and Marvin T. Sawyer, for Fontana Unified School District; Nossaman, LLP, by Martin A. Mattes, Attorney at Law, Timothy J. Ryan, and Daniel A. Dell'Osa; for San Gabriel Valley Water Company; Selina Shek, for the Division of Ratepayer Advocates; interested parties.

Fred Curry, for the Division of Water and Audits and Patrick Hoglund, for the Division of Ratepayer Advocates.

DECISION ADOPTING TEST YEAR 2009/10 REVENUE REQUIREMENT

AND RATES FOR THE FONTANA WATER COMPANY DIVISION OF

SAN GABRIEL VALLEY WATER COMPANY

TABLE OF CONTENTS

Title Page

DECISION ADOPTING TEST YEAR 2009/10 REVENUE REQUIREMENT

AND RATES FOR THE FONTANA WATER COMPANY DIVISION OF

SAN GABRIEL VALLEY WATER COMPANY 2

1. Summary 2

2. Background 3

3. The Settlement 4

4. Number of Customers 6

4.1. Positions of Parties 6

4.2. Discussion 7

5. Sales Per Customer 7

5.1. Positions of Parties 7

5.2. Discussion 8

6. Miscellaneous Expense-Litigation Expenses Not
Related to Water Quality...... 9

6.1. Positions of Parties 9

6.2. Discussion 10

7. Regulatory Commission Expense 10

7.1. Positions of Parties 10

7.2. Discussion 11

8. Ratemaking Treatment of Investments in Shares of
Fontana Union Water Company 11

8.1. Positions of Parties 11

8.2. Discussion 12

9. Treatment of Facilities Fees 15

9.1. Positions of Parties 15

9.2. Discussion 16

10. Plans for Developing Recycled Water Service 17

10.1. Positions of Parties 17

10.2. Discussion 17

11. Plant F13 18

11.1. Positions of Parties 19

11.2. Discussion 19

12. Plant F16 20

12.1. Positions of Parties 20

12.2. Discussion 21

13. Plant F17 21

13.1. Positions of Parties 22

13.2. Discussion 22

14. Plant F21 23

14.1. Positions of Parties 23

14.2. Discussion 24

15. Plant F23 25

15.1. Positions of Parties 25

15.2. Discussion 26

16. Mains-Account 343 26

16.1. Positions of Parties 26

16.2. Discussion 27

17. Services-Account 345 28

17.1. Positions of Parties 28

17.2. Discussion 29

18. Reasonableness Review-Burden of Proof 29

19. Reasonableness Review-Job No. 4761-Plant F16-Install
Electrical Panel 31

19.1. Positions of Parties 31

19.2. Discussion 32

20. Reasonableness Review-Job No. 4822-Plant-F53
Acquisition of Land Parcel No. 215 32

20.1. Positions of Parties 32

20.2. Discussion 33

21. Reasonableness Review-Job No. 4870-F7-Plant Drill and
Equip Well F7B, Construct Reservoir F7A, Booster Station
and Site Improvements 34

21.1. Positions of Parties 34

21.2. Discussion 35

22. Reasonableness Review-Job No. 4895-Plant F51
Acquisition of Land Parcel No. 221 36

22.1. Positions of Parties 36

22.2. Discussion 37

23. Reasonableness Review-Job No. 4901-Linden Avenue
North of Casmalia Street Install 42-Inch Pipeline 38

23.1. Positions of Parties 38

23.2. Discussion 39

24. Reasonableness Review-Job No. 4982-Cherry Avenue
South of Foothill Boulevard-Install 24-Inch and 16-Inch Pipelines 40

24.1. Positions of Parties 40

24.2. Discussion 40

25. Reasonableness Review-Job No. 5025-Sierra Avenue
North of Baseline Avenue-Install 24-Inch Pipeline,
Services and Fire Hydrant 41

25.1. Positions of Parties 41

25.2. Discussion 42

26. Reasonableness Review-Job No. 5089-Baseline Avenue
East of Cypress Avenue - Install 24-Inch Pipeline, Services
and Fire Hydrants 42

26.1. Positions of Parties 42

26.2. Discussion 43

27. Reasonableness Review-Job No. 5111-Walnut Avenue
West of Sierra Avenue- Install 24-Inch Pipeline 43

27.1. Positions of Parties 43

27.2. Discussion 44

28. Reasonableness Review-Job No. 5199-Plant F13-Recoat
Interior and Exterior of Reservoir F13(L) 45

28.1. Positions of Parties 45

28.2. Discussion 47

29. Reasonableness Review-Job No. 5205 and Job No. 5316-
Systemwide-Install Services, Plastic Service
Replacement 2007 and 2008 48

29.1. Positions of Parties 48

29.2. Discussion 48

30. Reasonableness Review-Headquarters Office Complex
(Office Complex) 49

30.1. Positions of Parties 49

30.2. Discussion 52

30.2.1. Contractor Costs 54

30.2.2. Building A-Reasonable Costs and GO Allocation 55

30.2.3. Reasonable Costs for the Remaining
16 GO Employees 58

30.2.4. Building B-Reasonable Costs 62

30.2.5. Affiliate Costs Not Properly Attributable to SGV 63

30.2.6. Reasonable Office Complex Costs 63

30.2.7. Treatment of Old Office Site 64

31. Reasonableness Review-Sandhill 64

31.1. Positions of Parties 66

31.2. Discussion 68

32. Water Quality 73

33. Customer Service 73

34. Master Plan 73

35. Balancing and Memorandum Accounts 73

35.1. Discussion 75

36. Comments on the Proposed Decision 75

37. Assignment of Proceeding 76

Findings of Fact 76

Conclusions of Law 96

ORDER.. 105

ATTACHMENT A - Settlement Agreement

ATTACHMENT B - Summary of Earnings (Appendix A)

Quantities - 2009-2010 (Appendix B)

Comparison of Bills (Appendix C)

DECISION ADOPTING TEST YEAR 2009/10 REVENUE REQUIREMENT

AND RATES FOR THE FONTANA WATER COMPANY DIVISION OF

SAN GABRIEL VALLEY WATER COMPANY

1. Summary

By this decision, San Gabriel Valley Water Company is authorized a revenue requirement for its Fontana Water Company Division of $6,993,900, an increase of 14.42% for the 12 months beginning July 1, 2009.¹ The average residential customer with average water use will experience a bill increase of 15.4%.² Rates will be adjusted for 2010 and 2011 consistent with the existing water company rate case plan (Decision 07-05-062).

This decision declines to adopt a settlement, included herein as Attachment A, between San Gabriel Valley Water Company and the Commission's Division of Ratepayer Advocates addressing forecast issues. Pursuant to Rule 12.4 of the Commission's Rules of Practice and Procedure, this decision adopts the settlement with several alternative terms. In addition, the reasonableness review of post-2002 plant additions is addressed.

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).

The most significant monetary differences between the application as modified by the settlement filed by the settling parties, and the revenue requirement adopted herein are:

· A reduction in Miscellaneous Expense of $202,300;

· A reduction in ratebase for the proposed ratemaking treatment of Shares in Fontana Unified Water Company from $4,200,000 to $1,585,920;

· A reduction in capitalized expenditures for Mains of $1,000,000 for 2011;

· A ratebase reduction of $537,868 for a retaining wall included in Job No. 4870;

· A ratebase reduction of $1,158,602 for a pipeline installed as Job No. 5111;

· A reduction in the amount included in ratebase for the new Office Complex from $18,124,864 to $15,001,733, allocated between the Fontana Water Company Division and General Office; and

· An increase in General Office rental expense of $156,718.

This proceeding is closed.

¹ Attachment B contains the summary of earnings, quantities used to calculate the summary of earnings, bill comparisons, rate tables and tariffs.

² Residential customers with a 3 /4 x 5/8-inch meter using 23 hundred cubic feet of water per month.