Discussion

RBEA and the Rate Support Fund Settlement

In its applications, CalWater sought approval to establish a company-wide subsidy program to benefit three districts (Antelope Valley, Redwood Valley, and Kern River Valley) that have much higher than average rate bases per customer.⁵ Rather than following the Commission's standard practice of using a rate base calculated from the plant investment, depreciation reserve and other factors specific to each district, CalWater's so-called RBEA (Rate Base Equalization Account) proposed to set the rates for these three districts using the company-wide (24-district) average rate base per customer. Imputing a lower rate base would reduce each high-cost district's revenue requirement and thus its rates. The revenues foregone by charging these lower rates would accumulate in a balancing or memorandum account with interest at the company's authorized rate of return, and would eventually be charged to all customers company-wide as part of the general office allocations.

Also, at the first prehearing conference and in the Assigned Commissioner's Scoping Ruling, the parties were urged to develop proposals to moderate the potential rate impacts these applications could have on CalWater's low-income customers.

On March 2, 2006, the parties submitted an all-party settlement proposing to establish a new Rate Support Fund (RSF) to address both issues.⁶ The new RSF settlement would supersede the RBEA proposal and lower rates in these three high-cost districts by spreading some of their costs across all 24 districts. It would also provide support for a new low-income ratepayer assistance program. The details of the parties' agreement are spelled out in their RSF settlement attached to this decision as Appendix G.

The new RSF would be funded by a volumetric surcharge on every unit of water CalWater sells in all 24 districts, and a per customer charge for unmetered customers on a flat rate. The duration of the RSF would be this three-year GRC cycle, and the RSF credits and surcharges would be booked into a single balancing account.⁷

Two aspects of the RSF settlement require our interpretation before they could be implemented: how to define in tariffs the general rate assistance subsidy the three districts would receive, and how to define in tariffs the RSF surcharge applicable to all CalWater districts. We interpret the RSF settlement to call for general rate assistance subsidies as set forth in settlement Section 4, i.e., precisely $20 per customer per month in Kern River Valley district⁸, $17 per customer per month in the Lucerne rate area, $8.50 per customer per month in the Fremont Valley service area, $6.05 per Ccf (one-hundred cubic feet) in the Coast Springs rate area, and $1.76 per Ccf in the Redwood Valley Unified rate area.⁹ These subsidy amounts are based on various underlying assumptions made by the parties; absent any future Commission order to the contrary, we consider these subsidies fixed for the duration of this GRC cycle, not to be adjusted should any party later believe the underlying assumptions to have been incorrect. With respect to the RSF surcharge to be applied in all 24 CalWater districts, we interpret the RSF settlement to call for an initial $0.009 per Ccf surcharge on all metered water usage (except usage by low-income customers), or, for unmetered, flat rate customers, surcharges between $0.24 and $0.36 per customer depending on the district, both as referenced in settlement Section 5 and further detailed in settlement Attachment B, page 2. RSF surcharges are to be adjusted later if necessary to correct excessive imbalances in the account, following the provisions of settlement Section 8 and the Commission's standard balancing account procedures. The tariffs we adopt will reflect these outcomes.

Additionally, the tariffs will provide that in no instance should the total amount of the combined (general rate assistance plus low-income) subsidy received by a customer in any month exceed that customer's water bill for service received in that month.

Two statements in the settlement merit comment:

Parties acknowledge that CWS has an application pending (A.05-10-035) for a company-wide low income rate assistance (LIRA) program that would apply to all CWS districts. Parties agree that low income customers in Antelope Valley, Kern River Valley and Redwood Valley should receive the higher of any low income assistance authorized in that proceeding or the low income assistance adopted in the instant proceeding, but not both. Parties expect that in A.05-10-035 the low income assistance and corresponding surcharges authorized in this proceeding will be combined into the company-wide low income rate assistance fund and surcharge mechanism that is adopted in A.05-10-035. (RSF settlement, Section 4.b.)

And,

Consistent with Rule 51.8 of the Commission's Rules of Practice and Procedure, this Agreement is not precedential in any other proceeding before this Commission, except as expressly provided in this Agreement. (RSF settlement, Section 14).

These statements must be interpreted in a manner consistent with Rule 51.8 which states that Commission adoption of a settlement or stipulation is binding on the parties, but may not be considered precedential in future proceedings unless the Commission provides otherwise.¹⁰ What "parties expect" notwithstanding, our determinations in CalWater's pending A.05-10-035 will be based on the record developed in that proceeding, including, if appropriate, any notice taken there of the parties' settlement and our order here.

All of the parties to this proceeding have agreed to the outcome proposed in the RSF settlement. To evaluate such agreements, the Commission applies the standards set forth in Rule 51.1(e), i.e., "The Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest. We are satisfied that the record supports the requisite findings under Rule 51.1(e).

Applicant CalWater prepared the original RBEA proposal and supported it with witness direct and rebuttal testimony at the evidentiary hearings. DRA, whose charge is to promote the ratepayers' interests, objected to CalWater's original RBEA proposal and prepared, presented and defended a report detailing its concerns. Both CalWater and DRA were represented by technical staff and legal counsel in the proceeding. CalWater customers at the public participation hearings, and the intervening parties representing them at all stages, were knowledgeable of CalWater's proposal and active in presenting and defending their views.

The parties have explained how in their negotiations they considered the affordability of rates in the districts (i.e., income levels, usage levels, rate base per customer, availability of public loan funds, and average bills), public comments at the public participation hearings, letters to the Commission and DRA, and the impact of extraordinary water quality problems.¹¹ The RSF settlement addresses both components of affordability: the burden of high rate levels in districts that need critical water infrastructure improvements, and the ability of low-income customers to pay for those improvements in these largely rural areas. The fact that the RSF would subsidize all customers in these districts, even those who could afford to pay the true cost of water, concerns us. However, we see the RSF settlement as preferable in that regard to postponing or disallowing necessary improvements, or, in the alternative, approving them and imposing a ratemaking treatment that fails to provide sufficient revenue to cover their costs.

The Commission must come to terms with how to deal with areas such as these where providing water service is costly. The RSF proposal before us is by no means the only possible solution, but it is a marked improvement over the original RBEA proposal, a complicated ratemaking treatment that resulted in hidden cross-subsidies. Cross-subsidies are generally to be avoided, but where they are truly needed, we prefer they be explicit, as they are in the RSF proposal, rather than hidden as they would have been under the RBEA.

The record shows that agreement was reached only after significant give-and-take between the parties. Attachment A to the proposed RSF settlement sets forth CalWater's and DRA's initial positions on each point, and how each was resolved in the settlement. All parties participated in the settlement negotiations, and all support the outcome. We conclude that the sponsoring parties are fairly representative of the affected interests, and the resulting settlement is reasonable in light of the whole record.

The parties state that they are not aware of any statutory provision or prior Commission decision that might conflict with any provision of the settlement, nor are we. The Commission's recent Water Action Plan provides that the Commission "will develop options to increase affordability of water service for [low-income] customers...." Indeed, the parties' proposed settlement makes rates more affordable for all CalWater customers in its highest-cost areas, provides additional support for low-income customers, and does both at minimal cost to its other ratepayers. The RSF settlement is consistent with law and the Commission's goals.

We have previously explained that a critical factor in our decision to adopt a settlement is confidence that it commands broad support among participants fairly reflective of affected interests.¹² In this proceeding, all of the parties have agreed on the RSF, and those parties fairly reflect the affected interests. CalWater provides water service to the customers in the districts affected, DRA is statutorily mandated with representing ratepayers in all 24 of CalWater's water districts, and the intervenors are both ratepayers and consumer advocates from the CalWater districts most strongly affected by the RSF. The principal public interest affected by this proceeding is the delivery of safe, reliable water service at reasonable rates. Today's settlement advances that interest. And, as the Commission has acknowledged in the past, there is a strong public policy favoring the settlement of disputes to avoid costly and protracted litigation. Today's settlement promotes that policy as well.

Our action today should not be interpreted as the final word on the broad topic of water affordability in high cost areas. We see this settlement not as the only answer, but as a reasonable and pragmatic way to proceed in the case before us. We intend in future proceedings to continue to examine the issue.

We conclude that the RSF settlement is in the public interest and should be approved.

WRAM Stipulation

On March 9, 2006, CalWater and DRA filed a motion to approve two additional, separate stipulation agreements between them.¹³ The first proposed implementing increasing-block rate structures in all eight districts during this rate case cycle and a revenue adjustment mechanism to offset any variations in revenues and variable expenses such a rate structure might produce. The second, discussed in the next section, covered the remaining issues between CalWater and DRA, with the notable exception of their plant in service issues in the Coast Springs area of Redwood Valley district and the return on equity determination for all eight districts. The other parties did not join in these two proposed stipulations.

In its eight GRC applications, CalWater proposed to establish what it termed a Water Revenue Adjustment Mechanism (WRAM), essentially a total revenue balancing account that would virtually guarantee that the utility would always receive the GRC-estimated sales revenues for the districts to which the WRAM would apply. CalWater's stated purpose was to remove a disincentive to conservation. Under its current policy established in 1986, the Commission favors a water rate design consisting of service charges that recover up to 50% of the water utility's fixed costs and quantity rates that recover the remainder of the fixed costs and all variable costs.¹⁴ By placing nearly one-half of the water utility's fixed cost recovery in service charges that are less subject to variation, the Commission was able to reduce the utility's revenue volatility (and thus risk) at little or no additional cost to its ratepayers. This approach leaves at least one-half of the utility's fixed costs (and all of the variable costs) to be recovered in the quantity charges, so the more water it sells above the GRC estimate, the greater its opportunity to recover or over-recover its fixed costs.

In its applications, in prepared testimony, and until part-way through the evidentiary hearing, CalWater sought to have the Commission authorize a WRAM it characterized as being essentially identical to the WRAM the Commission has granted to California-American Water Company in each GRC for its Monterey division since 1997. When that characterization was challenged in the evidentiary hearing, however, CalWater did additional research and returned to acknowledge that it had misunderstood and unknowingly misdescribed the Monterey division WRAM mechanism it was citing as precedent.¹⁵

CalWater's applications did not propose an ascending block rate structure to accompany its WRAM proposal. Nor, according to DRA, did CalWater propose a correction for sales-related costs that decline with declining sales, or a rate of return adjustment to reflect the greatly reduced financial risk it would face if its sales revenues were subject to balancing account treatment. DRA charges that decoupling sales from revenues is not necessary to remove a perceived incentive to increase sales and a perceived disincentive to conservation. Thus, from DRA's point of view, CalWater's application request for a permanent WRAM was not about facilitating conservation, but rather about moving toward a guaranteed recovery of revenues, and hence guaranteed earnings.¹⁶

Settlement discussions on WRAM and other GRC topics began in mid-November 2005 and, according to the joint CalWater and DRA motion, continued through the evidentiary hearings in late-January and the March 9, 2006 date the WRAM settlement was filed. One statement in the motion to adopt the settlement goes to the heart of our first reason for rejecting it: "As a result of those discussions, an agreement has been reached to resolve the WRAM issue raised in the Company's applications...." While this could be read to mean, "An agreement has been reached that resolves the WRAM issue...," it would more correct to read it literally as written: "[A]n agreement has been reached to resolve the WRAM issue...." That is, the parties have agreed to agree, but have not yet done so.

One of our oft-cited criteria for approving all-party settlements is that they must provide the Commission with sufficient information to discharge its regulatory obligations. ¹⁷ While this is not an all-party settlement, the need here is no less important. As we discuss next, this settlement fails that "sufficient information" criterion and must be rejected.

The first page of the CalWater and DRA Revenue Adjustment Mechanism Agreement filed on March 9, 2006 states,

The Parties agree that increasing block rates should be implemented in the first test year for all districts and all customer classes not covered by a Ratepayer Support Fund. Accordingly, within 30 days of the filing of this agreement the Parties intend to provide detailed rate design criteria for implementing increasing block rates by district for single-family residential customers. For other customer classes, the Parties intend to provide detailed rate design criteria for implementing increasing block rates by district within 60 days of the filing of this agreement. Additionally, the Parties have agreed to propose that the rate design criteria be adopted by the Commission in deciding the ratemaking issues and establishing a revenue requirement in this proceeding. And, that within 60 days of adopting rate design criteria the Parties be directed to file rates with the Water Division that comport with the adopted rate design.

CalWater and DRA had not finalized their rate design criteria, and thus had not reached a complete agreement that could be adopted by the Commission, when they filed the WRAM stipulation. Instead, this statement committed them to doing so within 30 days (i.e., by April 8) for single-family residential customers, and within 60 days (by May 8) for other customer classes. Rate design criteria are not an afterthought; they are an essential element to completing a water general rate case and implementing the new rates. Here, however, CalWater and DRA proposed to tender their criteria long after the record was submitted for decision, and to file the rates later with Water Division, presumably to be subjected thereafter to an as-yet-undefined approval process.

Even if we were to consider this a completed agreement between CalWater and DRA, it would present us with at least three concerns. First, the other, non-settling parties would be denied an opportunity to review, and if they disapprove, to object to, the stipulation once its full extent is revealed. A post-GRC advice letter review process could not match the opportunity conveyed to them under Rule 51 to review, object to, and be heard on this stipulation in which they have not joined.

Second, CalWater and DRA strongly disagree on the effect their revenue adjustment mechanism and still-to-be-defined rate design should have on CalWater's authorized return on equity. CalWater argues they should have no effect, while DRA argues for an arbitrary 300 basis point reduction. A balancing account that relieves the company of a risk of variability in its revenues and/or expenses does so by shifting that risk to ratepayers. That is, without a balancing account, the utility is at risk for variations while customers can look forward to paying known amounts for the water service they receive. Once a balancing account is introduced, customers assume some of that risk from the company. The effect on rate of return clearly should be examined, as we have noted in the past,¹⁸ but no party has attempted to do so in this record.

Third, notwithstanding their April 8, 2006 commitment in the WRAM stipulation statement quoted above, it was not until May 2 that the residential rate design criteria were submitted by letter to the ALJ. That letter, written on behalf of both DRA and CalWater, warned to expect a further delay in receiving the remaining criteria: "Unfortunately, due [sic] the complexities involved in transitioning from single block to multiple increasing block quantity rates the rate design criteria for the remaining customer classes will not be provided until July 31, 2006." ¹⁹ We cannot accept the still-negotiating parties' suggestion that this proceeding remain open for an indefinite period while they debate between themselves criteria to finalize their stipulation and complete this round of GRCs.

The proposed WRAM stipulation should be rejected because it does not provide the Commission with sufficient information to discharge its regulatory obligations, and because it cannot be incorporated into this proceeding without unduly delaying the proceeding or denying the other parties due process.

We remain open to considering any water conservation proposals CalWater and other stakeholders may present in future proceedings, including those that provide customer incentives through increasing block rate structures. At the same time, however, we will expect the parties who present those proposals to think them through well in advance, ensure they fairly balance the interests of both ratepayers and stockholders, describe them accurately and completely, and develop a complete record to allow the Commission to make an informed decision and properly implement them should they be approved. For this proceeding, we will pattern rates after the Commission's standard rate design while at the same time ordering CalWater to file within 60 days a new application that addresses the goals of the Water Action Plan by proposing an increasing block rate design for each of the districts in this general rate case for years 2007/2008 and 2008/2009, and an accompanying mechanism to decouple sales from revenues.

Stipulation on Remaining Issues

A second, separate stipulation agreement between CalWater and DRA filed with their March 9, 2006 motion covers all of the remaining issues between them with the exception of their plant in service differences in the Coast Springs area of Redwood Valley district and the return on equity determination for all eight districts.²⁰ A copy of that stipulation is included in this decision as Appendix H. The other parties who did not explicitly join in this stipulation have had an opportunity to review it and have waived their right to object by passing up the opportunity to comment.²¹

As we did with the RSF settlement addressed earlier, we will apply the standards set forth in Rule 51.1(e) in evaluating this stipulation: "The Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest." And, as we did with the earlier settlement, we conclude that this stipulation meets those standards. Most of our evaluation here parallels our earlier discussion, albeit with two rather than seven parties signing.

CalWater filed its applications accompanied by direct testimony and exhibits, prepared rebuttal testimony to address the other parties' presentations, presented witnesses at the evidentiary hearings, filed briefs, and has generally shown itself well capable of advocating its interests throughout this proceeding. DRA is charged with upholding the ratepayers' interests. In carrying out that charge, DRA evaluated CalWater's applications, exhibits and testimony, examined in depth the positions CalWater took on the issues, and likewise prepared, presented and defended extensive reports and testimony setting forth its own positions. Both CalWater and DRA were represented by technical staff and legal counsel in the proceeding. The stipulation represents a compromise between them arrived at through extensive negotiations, in the interest of avoiding the expense and uncertainty inherent in litigation.

For six districts, CalWater and DRA are the only parties. The five non-stipulating parties represent customers in Antelope Valley district and all three ratemaking areas of Redwood Valley district, and the RSF settlement discussed earlier addressed their top priority issue, rate affordability. Among the non-stipulating parties, Jeffrey Young and Marcos Pareas made technical showings that would directly affect CalWater's revenue requirement, advocating plant disallowances in Coast Springs rate area. Those issues are not part of this stipulation, but are instead taken up and decided in a separate decision section below.

The stipulation on remaining issues describes the agreement reached for each issue. The comparison exhibit prepared by CalWater and DRA lays out their initial and final positions on each line item of the summary of earnings, district by district. We have evaluated DRA's and CalWater's exhibits and testimony as they relate to the stipulated items, reviewed in detail their initial positions and compared them with the stipulation and accompanying explanations. In each case, the result is supportable. We conclude that the sponsoring parties are fairly representative of the affected interests, and the resulting stipulation they have reached is reasonable in light of the whole record.

The parties state that they are not aware of any statutory provision or prior Commission decision that might conflict with any provision of the stipulation on remaining issues, nor are we.

As we noted earlier, the principal public interest affected by this proceeding is the delivery of safe, reliable water service at reasonable rates. The CalWater and DRA stipulation on remaining issues advances that interest. And, as the Commission has acknowledged in the past, there is a strong public policy in favor of settling disputes to avoid costly and protracted litigation. The stipulation promotes that policy as well. We conclude that the CalWater and DRA stipulation on remaining issues is in the public interest and should be approved.

Rate Base

CalWater and DRA were initially far apart in their estimates comprising rate base for test years 2006/2007 and 2007/2008.²² They were eventually able to resolve their differences for all districts except the Coast Springs rate area of Redwood Valley district. The agreed-upon outcomes are set forth for each district in their stipulation on remaining issues. Most importantly, after coming to agreement on the cost and timing of many of CalWater's proposed plant additions, they jointly determined that many other capital projects for which the timing and plant costs are uncertain are nonetheless needed and should be reflected in rates through an advice letter process as they are completed and placed in service.²³ Their joint rate base recommendations are described in stipulation Section 3 and reflected in each section of the comparison exhibit. We have included as Appendix F a list of the advice letters authorized to be filed as projects are completed.²⁴ We address the remaining Coast Springs differences in the following section.

We see advantages to the parties' advice letter recommendations. CalWater would benefit by the increased certainty of timely rates to support the reasonable costs of needed additions as they enter service over the coming three years. Ratepayers would benefit by reducing CalWater's incentive to increase shareholder profits by delaying or canceling needed projects the Commission has authorized and included in advance in rates. By agreeing to caps on the maximum plant cost to be recovered in each project advice letter, the parties ensure that advance authorization does not constitute a blank check at ratepayers' expense. Cost overruns, if any, will not be reflected in rates until they are presented and examined for inclusion in the first test year of CalWater's next GRC cycle for these districts (currently anticipated to be 2009/2010).

Coast Springs Plant in Service

CalWater and DRA differ on the treatment to be given to two related, major plant projects in the Redwood Valley district, Coast Springs rate area. Project 14318 was initially labeled "upgrade treatment plant," and Project 14319 was "water quality compliance." Intervenors Young and Pareas take issue with particular components of these projects as well as CalWater's overall performance of them. Additionally, DRA endorses without elaboration the positions intervenors Young and Pareas take with respect to two other Coast Springs projects: a glass-fused storage tank, and a solar pump to prevent storage tank nitrification.

CalWater's witness testified that an earlier Project 8087 for a membrane treatment facility is now regarded as Phase 1 of its Coast Springs water treatment and water quality efforts. Project 14318 was further described as the Phase 2 portion of the Coast Springs membrane treatment installation, and Project 14319 is for work carried out under the water quality project.²⁵ An undefined portion of the projects was said to be in place by the time the parties were preparing for evidentiary hearings, but the accounting had not been completed and charges had yet to be cleared before the project costs could be booked. Thus, CalWater was unable to give a complete accounting of their costs, and the opposing parties were unable to test them for reasonableness. While the final figures were not clear at the time of hearing, what was clear that they had very greatly overrun CalWater's previous estimates, and that some of the rate case figures it had presented were too tentative to be relied upon.

Funding for Project 14318 is said to be spread to three sources: a State Revolving Fund (SRF) loan, excess funds collected earlier for repayment of a Safe Drinking Water Bond Act (SDWBA) loan, and amounts sought in this GRC as 2005 plant in service. Table 2 summarizes from the evidentiary record the components of the project's estimated costs and funding sources as they stood at the time of hearing.

⁵ Notice of the RBEA proposal and the effect it could have was provided to all CalWater customers statewide early in the proceeding.

⁶ Joint Motion of California Water Service Company and The Division of Ratepayer Advocates to Approve Stipulation Concerning Rate Base Equalization Account Settlement, with attached Rate Base Equalization Account Settlement ("RSF settlement") filed March 2, 2006.

⁷ The RSF settlement, Section 8, sets forth certain specific procedures to be applicable to the RSF balancing account, including how subsidies and surcharges are to be booked, when and how the surcharge should be adjusted, and a provision for balances to accrue interest at the 90-day commercial paper rate. In the absence of settlement provisions to the contrary, in all other respects the RSF balancing account would be governed by the Commission's procedures for balancing accounts generally. (See RSF settlement, Section 18).

⁸ RSF support (both high-cost district and low-income) for Kern River Valley district will be implemented at the same time the rate increase associated with infrastructure improvements (see Appendix F) to comply with the new arsenic standard becomes effective. (RSF Settlement, Section 6).

⁹ These are the subsidy levels set forth in RSF settlement Section 4.a. Wording in the first sentence of Section 3 could lead one to interpret the general rate assistance subsidy for each district to be implemented differently.

¹⁰ Rule 51.8: "Commission adoption of a stipulation or settlement is binding on all parties to the proceeding in which the stipulation or settlement is proposed. Unless the Commission expressly provides otherwise, such adoption does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding."

¹¹ See, e.g., Exhibits Lucerne-1 and Lucerne-2, sponsored by Lucerne Community Water Organization witnesses Stephen Elias and Catherine Elias-Jermany respectively. Those exhibits present demographic evidence to show the difficulty Lucerne rate area customers would have paying their water bills at CalWater's application-proposed rates, absent an RSF mechanism or its equivalent.

¹² San Diego Gas & Electric, D.92-12-019, 46 CPUC 2d 538, 554 (1992).

¹³ Joint Motion of California Water Service Company and the Division of Ratepayer Advocates to Approve a Stipulation concerning the Water Revenue Adjustment Mechanism and a Stipulation regarding Remaining Issues, filed March 9, 2006, attaching a WRAM stipulation and a stipulation on remaining issues. CalWater and DRA sought and were granted an extension of the Rules of Practice and Procedure, Rule 51.2 requirement that any settlements and stipulations be filed not later than 30 days after the last date of evidentiary hearing. (ALJ's Ruling Extending Time to File Settlement, March 2, 2006).

¹⁴ Decision (D.) 86-05-065 (May 28, 1986) in Order Instituting Investigation 84-11-041, Order Instituting Investigation (Rulemaking) into Water Rate Design Policy. Under the Commission's Water Action Plan (December 15, 2005), the Commission will encourage alternative rate designs, including increasing block rate designs, where feasible to promote conservation and after considering their effects on low-income customers.

¹⁵ The WRAM balancing account for California-American Water Company's Monterey Division is not intended to true up the utility's steeply ascending, multiple-block revenues to the GRC estimate, but rather to what the revenues would have been had each customer been billed on the Commission-standard rate design described earlier. Thus, it does not relieve California-American Water Company of its normal revenue risk due to sales variation, but rather returns it to that normal risk level from the extreme revenue risk it would otherwise face under the steeply ascending, multiple-block rate structure the Commission has established to meet water production constraints placed on the utility by the California Water Resources Control Board.

¹⁶ Exhibit DRA-10, pages 1 through 4.

¹⁷ San Diego Gas & Electric, D.92-12-019, 46 CPUC 2d 538, 552-553 (1992).

¹⁸ With respect to the effect of rate design on risk and return on equity, see, e.g., D.86-05-064, our final order in I.84-11-041, Order Instituting Investigation (Rulemaking) into Water Rate Design Policy: "We recognize that a change in rate design affects risk, which in turn impacts a utility's rate of return.... Because rate design affects the risk of a utility, we concur that [the impact of rate design on rate of return] should be addressed in future general rate proceedings on a case-by-case basis. This would enable us to assess the risk associated with a change in rate design with other utility risks so that we can arrive at a reasonable rate of return."

With respect to the effect establishing a new balancing account would have on risk and return on equity, see, e.g., our order in CalWater's last GRC proceeding: "...CWS is protected through separate balancing accounts for purchased water, purchased power and pump taxes, and memorandum accounts for catastrophic events and waste contamination. The result of these protections is to reduce the risk that CWS faces with regard to its opportunity to earn its return on equity. Consequently, we expect that in future proceedings all of these existing and adopted protections against erosion of future earnings will be given their proper weight in the determination of risk and consequently return on equity." (D.05-07-022, Section VII.G.).

¹⁹ The letter continues, "Because of the additional time necessary to develop the rate design criteria Cal Water and DRA will be filing a joint motion shortly with a recommended procedure for filing rates that implement the proposed rate design criteria." When the ALJ completed his draft decision and circulated it for review, nothing further had been received. The May 2, 2006 letter from Danilo Sanchez of DRA to ALJ McVicar was served on the parties and entered into the proceeding record by the ALJ's June 14, 2006 ruling.

²⁰ A review of the comparison exhibit prepared by CalWater and DRA confirms that Coast Springs plant and return on equity are the only differences remaining between them. Where other differences in the figures appear, they are due to these two issues.

²¹ "Whenever a party to a proceeding does not expressly join in a stipulation or settlement proposed for adoption by the Commission in that proceeding, such party shall have 30 days from the date of mailing of the stipulation or settlement within which to file comments contesting all or part of the stipulation or settlement, and shall serve such comments on all parties to the proceeding." (Rule 51.4).

"...Any failure by a party to file comments constitutes waiver by that party of all objections to the stipulation or settlement, including the right to hearing to the extent that such hearing is not otherwise required by law." (Rule 51.5).

²² The new RCP provides for one test year and two escalation years for establishing revenue and expense components in general rate cases, and two test years plus one escalation year for rate base components.

²³ In some cases, the advice letters will also reflect adjusted expense levels resulting from these projects' completion as well. See, e.g., stipulation Section 2.2.4.

²⁴ The advice letter listing was provided pursuant to Stipulation Section 2.42.

²⁵ RT 909.