STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

February 11, 2004 Agenda ID #3021

TO: PARTIES OF RECORD IN APPLICATION 02-11-007

RE: NOTICE OF AVAILABILITY OF REVISED PROPOSED DECISION IN SOUTHERN CALIFORNIA WATER COMPANY'S GENERAL RATE CASE APPLICATION, TEST YEARS 2003 AND 2004, ATTRITION YEAR 2005

Consistent with Rule 2.3(c) of the Commission's Rules of Practice and Procedure, I am issuing this Notice of Availability of the above-referenced revised proposed decision. The revised proposed decision was issued by Administrative Law Judge (ALJ) Fukutome on February 11, 2004. An Internet link to this document was sent via e-mail to all the parties on the service list who provided an e-mail address to the Commission. An electronic copy of this document can be viewed and downloaded at the Commission's Website ( www.cpuc.ca.gov). A hard copy of this document can be obtained by contacting the Commission's Central Files Office [(415) 703-2045].

The revised proposed decision will be on the Commission's February 26, 2004 Agenda. The original proposed decision was made available to you on November 21, 2003. The revision accepts some of the parties' comments, rejects others and modifies the discussion, findings and conclusion related to the water quality compliance issue.

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.

Due to the limited number of changes, a shortened comment period is provided. Parties to the proceeding may file concurrent comments on the revised proposed decision on or before February 20, 2004. Comments shall not exceed 15 pages.

Consistent with the service procedures in this proceeding, parties should send comments in electronic form to those appearances and the state service list that provided an electronic mail address to the Commission, including ALJ David Fukutome at dkf@cpuc.ca.gov. Service by U.S. mail is optional, except that hard copies should be served separately on ALJ Fukutome, and for that purpose I suggest hand delivery, overnight mail or other expeditious methods of service. In addition, if there is no electronic address available, the electronic mail is returned to the sender, or the recipient informs the sender of an inability to open the document, the sender shall

immediately arrange for alternate service (regular U.S. mail shall be the default, unless another means - such as overnight delivery-- is mutually agreed upon). The current service list for this proceeding is available on the Commission's Web page, www.cpuc.ca.gov.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:tcg

Attachment

ALJ/DKF/tcg REVISED DRAFT Agenda ID #3021

Ratesetting

Decision REVISED PROPOSED DECISION OF ALJ FUKUTOME (Mailed 2/11/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of SOUTHERN CALIFORNIA WATER COMPANY (U 133-W), for an order authorizing it to increase rates for water service by $19,826,100 or 29.72% in the year 2003; by $6,327,800 or 7.31% in the year 2004; and by $6,326,200 or 6.81% in the year 2005 in its Region III Service Area and to increase rates for the General Office Allocation in all of its Customer Service Areas in this Application including: Arden-Cordova, Bay Point, Clearlake, Los Osos, Ojai, Santa Maria, Simi Valley and Metropolitan.

Application 02-11-007 (Filed November 4, 2002)

OPINION RESOLVING APPLICATION

OPINION RESOLVING APPLICATION 2

1. Summary 2

2. Background 3

2.1. Procedural History 3

2.2. SCWC's Request 6

2.3. ORA's Recommendation 7

2.4. Position of the City of Claremont 7

2.5. Position of the City of San Dimas 8

2.6. Position of WPOA 8

3. Stipulation 8

3.1. Plant 10

3.2. Sales 16

3.3. Labor 16

3.4. Administrative and General (A&G) Expenses 17

3.5. Operation and Maintenance 17

3.6. Supply 19

3.7. Common Issues 20

3.8. Audit 20

3.9. Other Issues 21

3.10. Tariff Rules 21

POLICY ISSUES 21

4. Regional or Single Tariff Rates 21

4.1. Background 21

4.2. Discussion 22

5. Allocation of GO Costs to Non-GRC Districts 26

6. Allocation of GO and Other Costs to Unregulated Operations 27

6.1. Discussion 28

7. Cash Preservation Plan 30

7.1. Background 31

7.2. Discussion 32

8. Earnings Test 37

9. Attrition 38

9.1. Discussion 39

10. Water Quality Memorandum Accounts 39

10.1. Discussion 40

11. Water OII Amortization 42

12. Water Quality Compliance 42

13. Lease of Water Rights to the City of Folsom 43

13.1. Procedural Background 43

13.2. Factual Background 44

13.3. Discussion 46

COST OF SERVICE ISSUES 53

14. Cost of Capital 53

14.1. Cost of Debt 53

14.2. Return on Equity 55

14.3. Return on Equity - Discussion of Models 56

14.4. Return on Equity - Discussion of Risk 60

15. Sales 65

15.1. Discussion 65

16. Water Supply Mix 66

16.1. Discussion 67

17. Supply Cost Increases 68

17.1. Discussion 69

18. General Office Labor 70

18.1. Discussion 70

19. Security Plan 72

19.1. Discussion 73

20. Customer Information System Software 75

20.1. Discussion 75

21. Pensions and Benefits 77

21.1. Discussion 78

22. Reconnection Fees 79

23. Comments on Proposed Decision 80

23.1. SCWC Comments 80

23.2. ORA Comments 87

23.3. City of Claremont Comments 88

24. Assignment of Proceeding 88

25. Timing 88

Findings of Fact 89

Conclusions of Law 95

ORDER 100

Appendices A - I

OPINION RESOLVING APPLICATION

1. Summary

This decision grants Southern California Water Company (SCWC) authority to increase rates by $8,097,000 or 12.06% in the year 2003; by $1,891,600 or 2.50% in the year 2004; and by $2,789,100 or 3.60% in the year 2005 in its Region III Service Area. Rates for Region III will continue to be determined on a regional, rather than district specific, basis. SCWC's request to also increase rates for the General Office Allocation to customer service areas (CSAs) in Regions I and II is denied. Beginning in 2003, revenues derived from the lease of water rights to the City of Folsom will be used to offset the cost of service for the Arden-Cordova CSA. The following table summarizes the authorized rate increases for Region III.

District	2003		2004		2005
Region III
Orange	$4,647,200	17.69%	$ 899,300	2.89%	$ 1,198,800	3.75%
Claremont	520,800	4.83%	332,700	2.93%	438,900	3.75%
San Dimas	1,021,400	7.90%	145,500	1.04%	530,700	3.76%
San Gabriel	720,000	11.40%	332,300	4.71%	276,900	3.75%
Barstow	1,187,800	17.80%	84,300	1.07%	311,100	3.93%
Calipatria-Niland	-	0.00%	97,500	9.17%	32,700	3.93%
Desert	-	0.00%	-	0.00%	-	0.00%
Wrightwood	-	0.00%	-	0.00%	-	0.00%
Total Region III	$8,097,000	12.06%	$1,891,600	2.50%	$2,789,100	3.60