Stipulated/Adopted Conservation Budget

The conservation expense figures in Table 4 are the three-year budget totals for each district and rate area,43 to be divided equally among the three years of this GRC cycle for ratemaking. Because the parties intend these to be total amounts allocated equally for ratemaking purposes across the three-year rate case cycle, they should not be subject to the Water Rate Case Plan's escalation procedures in the second and third years.

DRA recommends that CalWater phase its actual conservation expenditures in over this three-year rate case cycle. The stipulation provides that CalWater will track its conservation expenses against this conservation budget in a one-way balancing account and, in its next GRC filing for each district, propose to refund to customers any under-expenditure in the account.44

Two technical details not spelled out in the stipulation are warranted here. First, the balancing account entries should be tracked by district to enable refunding by district. To do otherwise would allow, for example, customers of one district who have had excess conservation expenditures made on their behalf to be subsidized by customers of another district where the conservation budget was underspent, and yet customers in the overspent district might still receive a refund at the end of three years if the budget was underspent in the aggregate.

Second, if for any reason the first test year of the next GRC cycle for any or all of these districts were to be postponed so that it begins more than three years after July 1, 2006, customers would continue to pay the rate increments corresponding to these conservation allowances. In that case, we should interpret the "conservation budget" to have continued into the period after 2008/2009, and it would be reasonable to require CalWater to enter additional budgeted amounts into the balancing account during that time. CalWater could then use the additional amounts for conservation activities during the fourth year, etc., until the beginning of the first test year in the next GRC cycle.45

Income Taxes and the American Jobs Creation Act

The parties concur on all aspects of income taxes except possibly one affecting only the federal return: CalWater has not responded to DRA's position on how to address the effects of the American Jobs Creation Act of 2004. However, because the effects of the Act are not reflected in the comparison exhibit or tax calculations for this decision, differences between their income tax estimates are due to differing estimates in other areas.

In D.05-07-044, we discussed the possible effects of the Act on San Gabriel Valley Water Company, a Class A water utility:

We conclude there is a strong likelihood San Gabriel will receive some as-yet-unquantifiable tax benefit from the Act. However, for purposes of this rate case cycle, we will not impute a specific tax benefit amount. Instead, the amount of San Gabriel's adopted revenue requirement that results from our computational assumption that the Act does not apply will be collected in rates and held subject to refund pending our order finally establishing in a future proceeding the actual tax benefit, if any, conveyed to San Gabriel under the Act. That future proceeding may be either a future San Gabriel general rate case or another, more generic proceeding involving other utilities as well. San Gabriel is to report the amount collected and the status of its tax liability under the Act in each general rate case until we have made a final determination.46

D.05-07-044 then proceeded to order that outcome.

In CalWater's last GRC, CalWater and DRA (then ORA) memorialized their agreement that CalWater may also be affected by the Act:

The parties agree that Cal Water may be affected by provisions of the Act, but that the extent and impact of those effects are not known. Therefore, the Parties agree that the approach taken in [D.05-07-044] on this issue should be used in this proceeding as well."47

The adopted D.05-07-022 agreement applies only to the eight CalWater districts in that GRC proceeding; it does not apply to any of the eight CalWater districts in today's proceeding.

DRA would have us follow the D.05-07-044 (San Gabriel) outcome in our determination today.48 CalWater is silent on the topic. Consistent with the earlier San Gabriel and CalWater GRC outcomes, neither party has reflected the Act's possibly tax and rate-reducing effects in its income tax calculations in this proceeding. We accept DRA's uncontested position, for the same reasons set forth in our San Gabriel decision.

General Office Advice Letters

In D.05-07-022, we authorized CalWater to file advice letters to recover the costs of up to 15 specific general office personnel after each has been hired, and to recover the costs associated with general office expansion project 10867 not to exceed the equivalent of the revenue requirement on $887,000 in capital additions (or in the alternative, to rent nearby office space at equivalent or lower cost). The office expansion advice letter authority was made effective only until the beginning of the test year in the 2007 GRC cycle. 49 The CalWater and DRA stipulation on remaining issues calls for making that advice letter cost recovery applicable to the districts in this proceeding.50 We will so order.

Dominguez Merger Synergies

In D.00-05-047, the Commission approved the merger of CalWater with Dominguez Services Corporation, at that time the holding company for what are now CalWater's Dominguez-South Bay, Redwood Valley, Kern River Valley and Antelope Valley districts. CalWater was allowed to include in rate base the purchase price of the Dominguez systems, including an amount representing the excess of fair market value over rate base (the "merger premium"), provided that the revenue requirement of the merger premium allowed in rates is at least offset by synergy savings generated by the merger. All of the first $3 million in synergy savings flows to CalWater to offset the revenue requirement of the merger premium, and any additional synergy savings are split 90% to CalWater and 10% to ratepayers. In rate cases since D.00-05-047, CalWater and Dominguez demonstrated the base-year revenue requirements to be used to determine synergies sharing amounts.51 In accordance with D.00-05-047 and D.02-08-024, today's proceeding is to be the last scheduled evaluation of those synergies.

In their stipulation on remaining issues, CalWater has agreed to DRA's synergies calculations, and they have provided a summary of their joint position.52 The components of those synergies and their joint recommendation as set forth in the stipulation are listed below.

CalWater and DRA agree that the merger premium revenue requirement is more than offset by merger-related savings. The only difference between their respective merger premium revenue requirements is due to their differing rate of return recommendations. The merger premium revenue requirement we adopt in this proceeding has been calculated to reflect our 10.16% adopted ROE and resulting rate of return. The merger premium revenue requirement expense adjustment should always exactly offset the revenue requirement of the remaining merger premium, so it will necessarily change in future rate cases as the merger premium is amortized and as the Commission's authorized rate of return changes.

CalWater and DRA agree that general office merger savings are $5,035,000 for the 2006/2007 test year. That amount will be adopted in this proceeding for use in future general office rate filings.

CalWater and DRA agree that the Dominguez, Palos Verdes and Hermosa-Redondo operations cost savings are $1,029,000 for the 2006/2007 test year. Allocating the total by the standard four-factor method assigns $406,455 to Dominguez-South Bay, $252,105 to Hermosa-Redondo, and $298,410 to Palos Verdes.53 Those amounts will be adopted in this proceeding for use in future GRCs for these districts.

CalWater and DRA agree that financing-related merger savings are $550,000 in Dominguez-South Bay district (only) for the 2006/2007 test year. That amount will be adopted in this proceeding for use in future Dominguez-South Bay district GRCs.

In D.03-09-021, the Commission approved CalWater and DRA's joint recommendation to authorize CalWater to establish a memorandum account to track the revenue requirement associated with CalWater's proposed synergies adjustment for subsequent recovery, if found reasonable.54 In their stipulation on remaining issues in this proceeding, they agree that CalWater should be allowed to recover amounts booked in the general office synergies memorandum account in the Bear Gulch, Hermosa-Redondo and Marysville districts from the effective date of D.04-04-041 through January 1, 2006, and that CalWater should request in its next GRC recovery of the remaining balances from that date to the effective date of rates in this proceeding.55 Having accepted above the parties' general office merger savings calculation method, we agree and will so order.

Water Expense Memorandum Account

CalWater's applications requested authority to establish total water cost balancing accounts for Bear Gulch, Dominguez-South Bay, and Hermosa-Redondo districts. In the stipulation on remaining issues, CalWater withdraws those requests for Bear Gulch and Hermosa-Redondo districts. For Dominguez-South Bay, it has now stipulated with DRA to replacing the total water cost balancing account proposal with a water expense memorandum account if it loses 5% or more of its well production capacity in that district.56 The water production memorandum account would track changes in water production costs due to mix changes only. Production expense changes due to wholesaler prices changes would continue to be tracked in the existing water supply balancing accounts. CalWater could seek Commission approval to recover up to 90% of any balance in the new memorandum account in its next GRC for Dominguez-South Bay district. We will authorize CalWater for the duration of this three-year rate case cycle to file an advice letter initiating such a water expense memorandum account for Dominguez-South Bay under the conditions and for the reasons set forth in the stipulation.

Escalation Years

The Water RCP provides for one test year and two escalation years for establishing revenue and expense components in GRCs, and two test years plus an extrapolated third year for rate base components. We first estimate the test year 2006/2007 expenses, rate base, and needed rate of return. Our summary of operations calculation using those figures generates an adopted revenue requirement for the test year. Using adopted customer and consumption levels, we design 2006/2007 rates to match the adopted revenue requirement figure. It is these figures and rates we actually adopt in the GRC; the increase figure for the test year is simply the difference between the adopted revenue requirement and revenue at present rates.

The revenue requirement for the second year begins with the adopted 2006/2007 test year figures for customers and consumption, expenses, and rate of return, and our GRC-adopted rate base for 2007/2008. The number of customers is increased using a simple, five-year average percentage change.57 Expenses are increased by a combination of customer growth and the then-most recent "Estimates of Non-labor and Wage Escalation Rates" and "Summary of Compensation per Hour" as published by Energy Cost of Service Branch (or, for items not covered by the ECSB rates, the most recently available, recorded, 12-month-ending change in the U.S. Cities CPI-U as published by ECSB).58 A summary of operations calculation using those figures (with possible adjustments for significant, nonrecurring items, as defined in D.04-06-018) once again generates a revenue requirement, this time for the second year, escalation year 2007/2008. The difference between the second and first year revenue requirements, adjusted if necessary by the results of the earnings test, 59 determines the first escalation year rate changes to be made effective July 1, 2007.

Calculations for the third year parallel those for the second, except rate base is determined by extrapolating from the first two years to the third.60 The proposed escalation year rates are to be consistent with the Commission's standard rate design policy.

We establish in this decision the 2006/2007 summary of earnings figures, rate base for 2006/2007, and the authorized rates of return for each year of this three-year rate case cycle. The revenue requirements and revised rates for the second and third years, escalation years 2007/2008 and 2008/2009, will not be fully determined until advice letters for those years based on ECSB's then-current escalation factors and the results of the earnings test are filed and evaluated in mid-2007 and mid-2008.

In their stipulation on remaining issues, Section 2.41, CalWater and DRA seek to have us adopt a specific ordering paragraph to govern CalWater's 2007/2008 and 2008/2009 escalation year filings. That paragraph would be ambiguous and erroneous in this context. First, the language CalWater and DRA seek and say was contained in D.05-07-022, CalWater's last GRC proceeding, is incorrectly quoted from Ordering Paragraph 6 of that order. Second, that language would need to be changed to reflect the correct attrition years for this proceeding. Third, the final words of the requested ordering paragraph, "for CWS districts," are erroneous in that the ordering paragraph would apparently need to be revised to recognize the parties' current agreement in stipulation Section 2.41 that seeks to except Redwood Valley district. Lastly, Ordering Paragraph 6 from D.05-07-022 that CalWater and DRA seek to carry forward here appears to have been contradicted by Ordering Paragraph 7 of that decision.61

To resolve the stipulation's internal conflicts, we note that the primary point intended seems to be to apply a modified recorded earnings test based on temperature and rainfall coefficients CalWater and DRA have agreed to, rather than a full recorded earnings test without weather adjustments, for all of the districts in this proceeding except Redwood Valley, when filing advice letters for escalation year rates. For Redwood Valley, the parties agree to use a full recorded earnings test. We will so order.

Amortizing Balancing Accounts

CalWater asks for authorization to recover any amounts booked in its balancing accounts that are below the advice letter recovery threshold of 2% of revenue requirement. Aside from its two-sentence request in each of the eight applications, it gave no explanation, offered no support, and made no further mention of this topic during the proceeding. CalWater should continue to follow the Commission's standard practices for balancing accounts.

Water Quality

Under the RCP, in each GRC the Commission examines the utility's district-by-district compliance with water quality standards. CalWater addressed the topic; DRA did so only peripherally.

Our requirement for utility compliance with water quality standards is expressed in General Order (GO) 103:

Any utility supplying water for human consumption ... shall comply with the laws and regulations of the state or local Department of Health Services.... A compliance by a utility with the regulations of the State Department of Health Services on a particular subject matter shall constitute a compliance with such of these rules as relate to the same subject matter except as otherwise ordered by the Commission. (GO 103, Section II.1.a.)

The Commission exercises concurrent jurisdiction with DHS (Department of Health Services) over the quality of drinking water provided by the regulated water utilities, and has used DHS standards in its regulatory proceedings as an integral part of its program of regulating water utilities for many years.

CalWater's application included extensive, prepared direct exhibits by its Director of Water Quality and Environmental Affairs summarizing the company's compliance in each district. All of those exhibits were admitted into evidence without cross-examination or objection. The company's presentation was based on mid-2005 and earlier data and provided descriptions of water sources, treatment methods, problem areas and future corrective measures where applicable, for all eight districts and the individual water systems within each. CalWater also included the 2004 issues of EPA-required Annual Water Quality Reports mailed to its customers.

DRA did not address the water quality issue directly, instead including this statement in its exhibit for each district:

CWS requests that the Commission make a finding that the district water quality meets all applicable state and federal drinking water standards and the provisions of General Order 103. CWS should be in compliance with applicable drinking water standards and water quality regulations which need to be verified preferably by DHS. ORA cannot make the finding as requested by CWS.62

DRA did, however, make many observations relating to water quality in the course of addressing various expense, plant, and affordability issues. Those observations typically involved the challenges CalWater faces in its smaller systems, and were broadly consistent with CalWater's water quality testimony.

For each district, CalWater asked and answered the following three questions. Has this district exceeded any MCL (maximum contaminant level) or deviated from accepted water quality procedures in the time since the last GRC? Has this district been cited by DHS since the last GRC? Does this district meet all federal and state drinking water standards? For Hermosa-Redondo, Marysville, and Palos Verdes districts, the answers were favorable without qualification. For various systems within the other districts, the answers were generally favorable, but with qualifications. Several systems have had problems that CalWater has since addressed or says it is planning to address in the near future.

Bear Gulch district had a single incidence of aluminum levels exceeding the secondary MCL, but still below the MCL.63 CalWater is monitoring aluminum levels at DHS' request.

Dominguez-South Bay district had one well containing color in excess of the secondary MCL, but otherwise received a favorable report. That well was on standby status and CalWater was in the process of identifying an appropriate treatment.

The Lake Hughes system in Antelope Valley district had one well with manganese levels in excess of the secondary MCL. The company reported plans to add iron and manganese removal treatment during 2005. Aside from this, CalWater reports that Antelope Valley district met all applicable drinking water standards.

The remaining two districts, Kern River Valley and Redwood Valley, consist of many small, previously independently owned systems acquired by Dominguez Services Corporation, CalWater's predecessor in these areas.64 Kern River Valley district is comprised of twelve separate systems, some with wells producing levels above the secondary MCLs for (in various combinations) iron, manganese, arsenic, copper and uranium.65 In response, CalWater has grouped these small Kern River Valley systems into three geographic regions based on the ability to physically combine them within each region. With the new arsenic rule taking effect in early-2006, arsenic levels have become the district's most critical problem. In its capital projects justification report, CalWater has provided a description of its $4.9 million arsenic mitigation effort, laying out for each region a time schedule, project summaries, and descriptions of the options considered. In one region,66 it will increase the size of the surface water treatment plant to take additional water from the Kern River and eliminate its dependence on wells. In the other two regions, it plans to combine several systems, eliminate some wells, and construct a treatment plant that will provide a reliable supply of good water. It has taken other, interim measures to address the problems in the meantime.

Redwood Valley is the other district that, like Kern River Valley, was assembled from separate, small, previously independent systems acquired by Dominguez Services Corporation and later merged into CalWater. Despite many challenges, CalWater reports that it does meet all federal and state drinking water standards in Redwood Valley district.67 CalWater reports no current or recent problems in the Armstrong Valley system, but water from its two wells may need future treatment to meet the surface water treatment rule if they are confirmed to be groundwater under the influence of surface water. Both wells in the Hawkins system produce water exceeding the secondary MCLs for iron and manganese. Although DHS has not cited CalWater for the problem, it is requiring it to submit a corrective plan and proposed schedule. The last round of monitoring in Noel Heights system detected lead and copper levels exceeding EPA's notification levels. CalWater is also looking into alternative treatment methods in Noel Heights to address seasonal turbidity problems that can overwhelm its filtration system and lead to shutdowns during rainstorms. The Rancho del Paradiso system has also suffered seasonal turbidity in the past. CalWater installed a microfiltration membrane and took other measures in 2004, but the permanent solution will come from replacing its single well with an intertie to nearby Sweetwater Springs Water district for which construction was to begin in 2005.

Lucerne is CalWater's largest Redwood Valley district system. Periodic algal blooms in its Clear Lake water source have in the past driven turbidity to levels in violation of California's surface treatment rule. With EPA's new, more strict enhanced surface water treatment rule set to go into effect in 2005, CalWater acknowledges that periodic non-compliance is likely to continue until it addresses the system's treatment problems. As a result, CalWater is proposing to build a new, multi-million dollar water treatment plant for Lucerne that it hopes to finance through a state revolving fund low-interest loan.68

CalWater was cited by DHS in January 2005 for exceeding the MCL for trihalomethanes in Coast Springs system during 2004. Trihalomethanes are a disinfection byproduct, a contaminant produced when a disinfectant reacts with naturally-occurring organic and inorganic matter present in water. DHS required CalWater to notify its Coast Springs customers and continue a quarterly monitoring program. CalWater attributes the problem to high amounts of organic and inorganic organic matter in the local water, coupled with chlorine used for disinfection and a high detention time. In response, CalWater switched from free chlorine disinfection to chloramines. Since that time, disinfection byproduct levels have been reduced by nearly 75%. According to CalWater's exhibits, the Coast Springs citation was the only one it has had during the past GRC cycle, and the only exception to its statement that it has complied with all applicable water quality standards in Redwood Valley district.69

CalWater has made a thorough water quality presentation for the eight districts in this proceeding. Where there are problems noted above, those problems result from the difficult local conditions CalWater faces and are not atypical of small systems. Most importantly, the company has made and continues to make substantial progress in improving water quality in the systems it took over with the Dominguez merger. We see no reason to question CalWater's assertion that it has complied with applicable water quality standards in these eight districts during the recent three-year period.

Other Intervenor Requests

Intervenor Lucerne Community Water Organization (LCWO) made additional requests in its opening brief that have not otherwise been addressed in our discussions above.

LCWO asks the Commission to order CalWater to impose a $10 per square foot capacity buy-in fee for new residential construction. CalWater responds with general support for the view that existing customers in Lucerne (and any other water system) should not experience an increase in rates due to customer growth. The current rules protect ratepayers by requiring new development to pay its actual costs; under tariff Rule 15, connections by individuals or developers requiring a main extension are already subject to charges for main extensions and special facilities (including water supply facilities) at actual cost. In addition, where significant growth occurs, a water utility may seek Commission authorization to impose a special per-lot facilities fee in lieu of following the actual cost procedure.

As LCWO acknowledges, this proposal was not previously raised in the proceeding, so we lack a sufficient record to order it at this time. The parties should more fully develop any proposals they wish to make and present evidence to support them in the next GRC for their district.

LCWO asks CalWater to distribute information on how to read meters, and to hold classes on meter reading. CalWater responds that meter reading pamphlets are available to customers either at the Lucerne office or by mail. Customers will also be provided a meter reading demonstration at the company's Lucerne office upon request. Further, if LCWO or other groups organize a meeting, CalWater will send a representative with meter reading instructional material and conduct a meter reading demonstration.

LCWO requests that CalWater meet quarterly with it to review capital, maintenance and other issues concerning the Lucerne water system. CalWater agrees to do so.

LCWO charges that CalWater has not adequately addressed leaks in the Lucerne system. This is a new charge, and as CalWater points out, not one addressed by evidence in the record.

No additional orders relating to these points are necessary.

Comments on Proposed Decision

The principal hearing officer's proposed decision was filed with the Commission and served on all parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Rules of Practice and Procedure. ________ filed comments, and ___________ filed replies to comments.

Assignment of Proceeding

John Bohn is the Assigned Commissioner and James McVicar is the assigned ALJ in this proceeding.

Findings of Fact

1. The parties' RSF proposal properly considers rate affordability 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.

2. The parties' RSF proposal makes rates more affordable for all CalWater customers in the highest-cost districts, and provides additional support for low-income customers, both at minimal cost to other CalWater ratepayers.

3. CalWater and DRA's WRAM stipulation does not provide rate design criteria. Rate design criteria are an essential element to completing a water general rate case and implementing new rates.

4. There is insufficient evidence in the record to determine what return on equity adjustment, if any, would be appropriate for CalWater if the Commission were to approve the WRAM stipulation.

5. The WRAM stipulation does not provide the Commission with sufficient information to discharge its regulatory obligations.

6. The WRAM stipulation cannot be incorporated into this proceeding without unduly delaying the proceeding or denying the other parties due process.

7. No party filed and served comments contesting the stipulation on remaining issues as they were required to do by our Rules of Practice and Procedure, Rule 51.4, if they desired to oppose it.

8. The agreed-upon outcomes CalWater and DRA jointly recommend in their stipulation on remaining issues are reasonable for ratemaking purposes in this proceeding.

9. CalWater has not demonstrated the reasonableness of its plant in service estimates for Projects 14318 and 14319 in the Coast Springs rate area. DRA, Young and Pareas have shown a likelihood that, when the projects are completed and a full cost accounting is made available, some part of CalWater's costs for these projects will be found to be unnecessary and unreasonable. DRA's estimates of these projects' costs are more reliable for our purpose than are CalWater's.

10. Young and Pareas have not shown that CalWater's selection of a glass fused-storage tank for Coast Springs was imprudent or unreasonable.

11. The solar-powered pump installed to prevent nitrification in Coast Springs' Ravine Tank is used and useful and should be allowed in plant for ratemaking.

12. It would not be reasonable to order CalWater to retain an independent firm to audit CalWater's Coast Springs construction contracting practices.

13. DRA's ROE analysis, once revised to incorporate certain of CalWater recommendations, produces a reasonable ROE estimate. CalWater's ROE analysis was incorrect and less credible than DRA's.

14. The capital structure, cost of debt, rate of return on equity, and rate of return on rate base shown in Table 3 are reasonable for setting CalWater's rates for the 2006/2007 through 2008/2009 GRC cycle.

15. The three-year conservation budget CalWater and DRA have agreed to in their stipulation on remaining issues is reasonable and necessary for promoting water conservation in the districts and rate areas to which it applies.

16. CalWater has not justified its request to recover amounts booked in its balancing accounts that are below the advice letter recovery threshold of 2% of revenue requirement.

17. The merger premium revenue requirement for test year 2006/2007 resulting from the merger of CalWater with Dominguez Services Corporation is more than offset by merger-related savings. The synergy savings amounts discussed in the Dominguez Merger Synergies section of this decision are appropriate for use in future ratesetting proceedings.

18. If CalWater should lose 5% or more of its well production capacity in Dominguez-South Bay district during this GRC cycle, it would be reasonable to allow CalWater to file an advice letter initiating a water expense memorandum account for that district to track changes in water production costs due to mix changes only, and for CalWater to seek Commission approval in its next GRC for Dominguez-South Bay district to recover up to 90% of any balance in the new memorandum account.

19. When filing advice letters for escalation year rates, it would be appropriate to apply a modified recorded earnings test based on the temperature and rainfall coefficients CalWater and DRA have agreed to, rather than a full recorded earnings test without weather adjustments, for all of the districts in this proceeding except Redwood Valley. For Redwood Valley, it would be more appropriate to use a full recorded earnings test.

20. The adopted summary of earnings for each district presented in Appendix A, the adopted 2006/2007 and 2007/2008 rate bases in Appendix B, and the adopted quantities and calculations included as Appendix E that underlie them, are reasonable for ratemaking purposes.

21. The test year 2006/2007 rates in Appendix C have been designed to produce revenues consistent with the summary of earnings adopted in this order.

22. CalWater has made and continues to make substantial progress in improving water quality in the systems it took over with the Dominguez merger.

42 Redwood Valley district breakdown to rate areas taken from comparison exhibit.

43 Stipulation on remaining issues, Section 2.2.6.

44 A one-way balancing account is less disadvantageous to CalWater than it might at first seem. CalWater has control over its conservation expenditures and will be motivated not to exceed the budgeted allowances.

45 For example: The Antelope Valley district three-year conservation budget is $72,000. CalWater will credit the balancing account with $24,000 annually (or a prorated lesser amount for the first year to recognize that rates will not take effect on July 1, 2006). It will reduce the account by the amount of its reasonable conservation expenses. However, if the next GRC cycle for Antelope Valley were delayed six months to calendar year 2010, CalWater would continue to collect the same level of conservation expenses in rates, we would expect the balancing account to accumulate another $12,000, and CalWater would be allowed to continue to recover additional conservation expenses from the account.

46 D.05-07-044, page 39.

47 D.05-07-022, Appendix N, a late-filed addendum to the adopted CalWater and DRA settlement.

48 Exhibit DRA-1, page 6-3, for Kern River Valley district; repeated in corresponding exhibits for other districts.

49 D.05-07-022, Attachment B, Section 2.1.3.9; and Ordering Paragraph 9.

50 Stipulation on remaining issues, Section 2.42.

51 D.00-05-047 established a timetable for determining the synergies savings amounts. D.02-08-024 authorized a delay in conducting those reviews from 2001 to 2002 and from 2004 to 2005.

52 Stipulation on remaining issues, Section 2.42, referencing "Joint Cal Water/DRA Explanation of Synergies" attached to the stipulation.

53 The remaining $72,030 of district operations savings is allocated to CalWater's unregulated operation in the City of Hawthorne.

54 D.03-09-021 (September 4, 2003), Attachment B, Section 1.11.

55 Stipulation on remaining issues, Section 2.42.

56 Stipulation on remaining issues, Section 2.42.

57 D.04-06-018, page 11.

58 D.04-06-018, page 12.

59 D.04-06-018, Appendix page 16.

60 The adopted rate bases for 2006/2007 and 2007/2008 are in Appendix B to this order.

61 Ordering Paragraph 7 of D.05-07-022 requires CalWater to follow an entirely different timeline and procedures in its advice letter filings for attrition year rates than does Ordering Paragraph 6. Ordering Paragraph 7 is more technically correct in that, e.g., it would permit Water Division to review the advice letter, and would not allow CalWater to make its attrition rates effective before July 1 of each year as Ordering Paragraph 6 and the parties' suggested ordering paragraph here would.

62 Exhibits DRA-1 through DRA-8, Executive Summary sections.

63 According to DHS, "Section 64449(b)(3), Chapter 15, Title 22, California Code of Regulations, requires all existing community water systems to comply with all secondary MCLs." (Exhibit E-BG, attached August 20, 2004 letter from DHS to CalWater). Secondary MCLs address the taste, odor, and appearance of drinking water.

64 Dominguez acquired most of its then-troubled Kern River Valley systems in the 1980's and 1990's, and all of the Redwood Valley district systems in 1997 and 1998. CalWater acquired Dominguez by way of a merger in 2000.

65 Despite these longstanding problems, CalWater reports that DHS has issued no citations in the district since June 2002 when it was cited for a procedural violation relating to nitrate sampling at two wells during 2001. CalWater's reports give no indication that nitrates have been a concern in any of its Kern River Valley systems. (Exhibit F, page 7).

66 Exhibit E-KRV, page 30.

67 Exhibit F-RV, page 11.

68 The anticipated cost of this treatment plant is the major factor in CalWater's GRC request to more than triple rates in the Lucerne rate area. The resulting high rates (along with the area's high proportion of low-income residents) were in turn a major factor in the all-party settlement's proposal to include Lucerne in the Rate Support Fund.

69 Exhibit F-RV, page 10.

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