Discussion

The continued EH, which was conducted on May 11, focused on issues that required elaboration or independent verification in the ALJ's judgement. One additional exhibit was received. A brief discussion of these issues follows.

A. Rate of Return

In its final revised request Hillview asked for a rate of return of 13.02% on a ratebase of $1,383,462. ORA's analysis indicated that Hillview's ratebase is $962,425, and that its rate of return is already 19.99%. At the requested rates, ORA estimated Hillview's rate of return would be 23.78%.

The resolution proposed in the Settlement is to allow a rate of return of 11.39% on a ratebase of $1,180,864. The explanation offered by ORA for agreeing to such a large increase in the ratebase above its original estimate is that in its computation it had inadvertently made a double entry of approximately $141,000 to both plant and contributions, resulting in duplication of the reduction in plant and ratebase. This sum reflects refunds that have not yet been made, and should not have been posted to plant. By increasing the ratebase, the percentage return is effectively lowered to a level that is acceptable to ORA.

The rate of return, 11.39%, is based upon Hillview's capital structure of 41% long term debt with an average interest rate of 9.45%, and 59% equity on which ORA agrees to a 12.75% of return. ORA's selection of this rate of return on equity is based upon the year 2000 edition of an annual memorandum concerning the Water Division's recommended rates of return for Class C and Class D water companies.³ That memo recommends a range of return on equity from 12.25% to 13.25% for Class D companies. ORA selected the midpoint value, 12.75%, as the appropriate percentage because Hillview's performance of water service was "average" at the time of the request.

B. Office Salaries

The Settlement increased office salaries from ORA's original proposal of $53,217 to $76,877, because the original figure was incorrectly based upon the existence of one rather than two part-time employees as part of the office staff.

C. Managerial Salaries

The Settlement increases ORA's proposed amount for managerial salaries from $35,735 to $46,375, the amount requested by Hillview. The salary figure is for one manager, Roger Forrester. As reported in the Settlement, the revised salary figure is based upon more detailed information Hillview furnished to ORA about his activities.

D. Professional Services

The stipulated figure proposed for professional service, $20,000, is an increase from ORA's original proposal of $11,844, although it is well under the $41,000 figure originally proposed by Hillview. The increase is due to Hillview's demonstration of a higher audit expense than originally estimated by ORA.

We find that the Settlement is reasonable in light of the whole record, consistent with law, and in the public interest. Significantly, although the Settlement adjusts the authorized return on ratebase and certain individual items, it will not result in an increase in rates. The parties' negotiated resolution therefore will have no impact on the company's customers. Our decision today merely perpetuates rates that have been in effect for many years, and Hillview has effectively abandoned its effort to increase those rates after negotiating with ORA. This decision will maintain the status quo while our investigation is pending, affording some stability until other important issues are resolved.

We will grant the parties' joint motion and adopt the Settlement.

The proposed decision of the ALJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Rules of Practice and Procedure. Comments were filed on _____________, and reply comments were filed on _________________.