ALJ/JCM/eap DRAFT Agenda ID # 5845

Ratesetting

Decision PROPOSED DECISION OF ALJ MCVICAR (Mailed 7/21/2006)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of California Water Service Company (U60W) for an Order Authorizing it to Increase Rates Charged for Water Service in the Antelope Valley District by $437,218 or 36.94% in fiscal 2006-2007, by $145,000 or 8.94% in Fiscal 2007-2008, and $145,000 or 8.21% in Fiscal 2008-2009.	Application 05-08-006 (Filed August 8, 2005)
And Related Matters.	Application 05-08-007 Application 05-08-008 Application 05-08-009 Application 05-08-010 Application 05-08-011 Application 05-08-012 Application 05-08-013 (Filed August 8, 2005)

Thomas F. Smegal, Darin T. Duncan, and Gregory Bowling, Attorney at Law, for California Water Service Company, applicant.

Jonathan J. Reiger, Attorney at Law, and Yoke W. Chan, for the Commission's Division of Ratepayer Advocates, interested party.

Stephen R. Elias, Attorney at Law, for Lucerne Community Water Organization; Joseph S. Lucido and Jack L. Chacanaca for Leona Valley Cherry Growers' Association; and Marcos Pareas, Jeffrey Young, and Jack Miller for themselves; interested parties.

OPINION GRANTING GENERAL RATE INCREASES

TABLE OF CONTENTS

Title Page

OPINION GRANTING GENERAL RATE INCREASES 2

Summary 2

Background 3

Discussion 6

RBEA and the Rate Support Fund Settlement 6

WRAM Stipulation 13

Stipulation on Remaining Issues 19

Rate Base 22

Coast Springs Plant in Service 23

Cost of Capital 30

Capital Structure and Cost of Debt 31

Cost of Equity 31

CalWater's Recommended Return on Equity 32

DRA's Recommended Return on Equity 34

Return on Equity Discussion 35

Rate of Return on Rate Base 39

Other Matters 40

Conservation Expenses 40

Income Taxes and the American Jobs Creation Act 43

General Office Advice Letters 44

Dominguez Merger Synergies 45

Water Expense Memorandum Account 47

Escalation Years 48

Amortizing Balancing Accounts 51

Water Quality 51

Other Intervenor Requests 57

Comments on Proposed Decision 58

Assignment of Proceeding 58

Findings of Fact 58

Conclusions of Law 61

ORDER 62

Appendix A Adopted Summaries of Earnings, Test Year 2006/2007

Appendix B Adopted Rate Base, Test Years 2006/2007 and 2007/2008

Appendix C Authorized Rates, Test Year 2006/2007

Appendix D Bill Comparisons

Appendix E Adopted Quantities and Calculations

Appendix F Authorized Advice Letters

Appendix G Rate Support Fund Settlement

Appendix H Stipulation on Remaining Issues

OPINION GRANTING GENERAL RATE INCREASES

Summary

This decision approves general rate increases for eight California Water Service Company (CalWater) districts for fiscal test year 2006/2007. Additional rate adjustments for the second and third years will be determined when advice letters for those years are filed and evaluated in May 2007 and May 2008 using summary of earnings figures we adopt today and the most recent escalation factors available at that time. In addition, CalWater may file advice letters to offset the revenue requirements of certain plant additions as they are completed over the three year rate case cycle, costs associated with its general office expansion project, costs of up to 15 specific general office personnel, and amounts booked in the general office synergies memorandum account for the Bear Gulch, Hermosa-Redondo and Marysville districts.

We also approve an all-party settlement leading to the establishment of a high-cost area general rate assistance benefit to all customers in the Redwood Valley and Kern River Valley districts and the Fremont Valley area of Antelope Valley district, and additional rate assistance to qualifying low-income customers in those three districts. Because the parties were unable to meet their commitment to fully define and finalize it, we do not adopt a separate, uncompleted stipulation agreement between CalWater and Division of Ratepayer Advocates (DRA) that proposed to establish increasing block rate structures and accompanying revenue and variable expense balancing accounts for all eight districts. To address the goals of the Water Action Plan, we order CalWater within 60 days to file a new application that proposes an increasing block rate design for each of these districts for years 2007/2008 and 2008/2009, and an accompanying mechanism to decouple sales from revenues. This proceeding is closed.