STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

January 29, 2008 File No.: 602-19

TO ALL INTERESTED PARTIES:

Enclosed is a draft resolution of the Division of Water and Audits. It will be on the Commission's February 28, 2008 agenda. The Commission may act on the resolution or it may postpone action until later.

When the Commission acts on the draft resolution, it may adopt all or part of it as written, amend, or modify or set it aside, and prepare a different resolution. Only when the Commission acts does the resolution become binding on the parties.

Parties to this matter may file comments on this draft resolution. Original and 2 copies of the comments, with a certificate of service, should be submitted to:

Division of Water and Audits, Third Floor

Attention: Adam Thaler

California Public Utilities Commission

505 Van Ness Avenue

San Francisco CA 94102

Parties may submit comments on or before February 18, 2008. The date of submission is the date the comments are received by the Division of Water and Audits. Parties must serve a copy of their comments on all persons on the service list attached to the draft Resolution, on the same date that the comments are submitted to the Division of Water and Audits.

Comments shall be limited to five pages in length plus a subject index listing the recommended changes to the draft resolution, a table of authorities and appendix setting forth the proposed findings and ordering paragraphs.

Comments shall focus on factual, legal, or technical errors in the draft Resolution. Comments that merely reargue positions taken in the advice letter or protests will be accorded no weight and are not to be submitted. Late submitted comments will not be considered.

/s/ RAMI S. KAHLON

Rami S. Kahlon, Director

Division of Water and Audits

Enclosures: Draft Resolution W-4676

Certificate of Service

Service List

WATER/FLC/SNR/MRB/AJT/jlj DRAFT Agenda ID #7316

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

DIVISION OF WATER AND AUDITS RESOLUTION NO. W-4676

Water and Sewer Advisory Branch February 28, 2008

RESOLUTION

(RES. W-4676), POINT ARENA WATER WORKS, INC. (Point Arena). ORDER AUTHORIZING A GENERAL RATE INCREASE, PRODUCING AN INCREASE OF $30,974 OR 15.23% PRODUCING GROSS ANNUAL REVENUES OF $234,314 IN TEST YEAR 2007.

SUMMARY

By Draft Advice Letter filed on July 20, 2006, Point Arena requested an increase of $40,155 or 19.74% in annual gross revenue for Test Year (TY) 2007. This resolution grants Point Arena a general rate increase in gross annual revenues of $234,314 or 15.23%. This will result in a rate of return of 13.25%.

Point Arena's present rates became effective on January 11, 2007, by Res. No.W-4627, which authorized an interim rate increase producing an increase in gross annual revenues of $20,000 or 10% relative to 2005 gross annual revenues.

A staff report was issued in September 2007. On October 18, 2007, Point Arena officials met with the Division of Water and Audits' (Division) Water and Sewer Advisory Branch (Branch) in a settlement meeting to discuss the difference in expenses between the Point Arena's request and the recommendations in the staff report. Appendix A includes a Summary of Earnings with the agreed upon expenses derived at the meeting.

BACKGROUND

By advice letter, Point Arena, a Class D water utility, requests authority under Section VI of General Order 96-A and Section 454 of the Public Utilities Code to increase water revenue for Point Arena by $40,155 or 19.74% for Test Year (TY) 2007 over the utility's estimate of present rates. The purposes of the rate increase are to: (a) fund needed improvements to the existing water system; (b) provide better on-site customer service; and (c) provide the owner of the utility with a return on equity commensurate with financial risk taken. Point Arena's present rates became effective on January 11, 2007 by Res. No.W-4627, which authorized an interim rate increase producing an increase in gross annual revenues of $20,000 or 10% relative to 2005 gross annual revenues. Interim rates provided Point Arena with sufficient income to pay operating expenses pending

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the processing of the utility's general rate case (GRC). The interim increase is subject to refund or increase pending approval of final GRC rates adopted by this resolution.

The last general rate increase for Point Arena was granted on September 2, 2004 per Decision (D.) 04-09-025 which authorized an increase in annual revenues of $70,137 or 56.9% for test year 2002 with a 13% rate of return on rate base. The total revenues granted for test year 2002 was $184,665.

Point Arena is a corporation owned by William Hay providing water service to 193 metered connections in the City of Point Arena and vicinity and Whiskey Shoals Subdivision Units 1, 2, and 3, Mendocino County.

Point Arena has two system areas. System No. 1 serves the entire City of Point Arena. Water is pumped from three wells. Well No. 1 is approximately 350 feet south of the Garcia River, Well No. 2 is 250 feet from Well No. 1, and Well No. 3 is located on Riverside Drive east of the main storage tanks. Well No. 2 and Well No. 3 are standby wells that only produce a couple of gallons per minute. A 15 horsepower submersible pump produces water from Well No. 1. The water travels through an 8-inch PVC line and then through a 6-inch PVC line to the 125,000-gallon storage tank where chlorine is added for coliform removal. The water then enters into a 285,000-gallon main storage tank and then is distributed to a 125,000-gallon tank for zone 1 which comprises all of the downtown area and the Arena Cove.

Zone 2, the entire uptown area and the east side of Point Arena where the Industrial Park is located, gets its water from the 125,000-gallon tank with two 15-horsepower booster pumps. One booster pump at the Bed Rock shop ensures adequate pressure. A fire pump located at the main storage tank provides adequate water for fire protection.

System No. 2 is at Whiskey Shoals located two miles south of Point Arena on the west side of Highway 1. It serves a small subdivision. There are two low volume wells and one 22,000-gallon storage tank to serve this area.

Point Arena has a total of 47,160 feet distribution service line, including Whiskey Shoals, ranging from 1-1/2-inch to 12-inch in diameter.

NOTICE , PROTESTS, AND PUBLIC MEETINGS

A notice of the full increase request of $40,155 or 19.75% was mailed to customers on November 3, 2006. The notice also indicated that due to the current negative cash flow condition in Point Arena, the Commission may authorize an interim increase in rates subject to refund or adjustment upon completion of the general rate case.

The Service Guarantee Plan for Small Water Companies (Standard Practice U-9-SM) as augmented by Res. No. W-4540, dated June 16, 2005, Ordering Paragraph No. 3, allows an interim rate increase for small water companies operating at a loss on a cash-flow basis. The interim rate increase provides the utility with sufficient income to cover its operating expenses. It is subject to refund or increase pending Commission-approved final GRC rates.

Point Arena is currently operating at a loss. The rate increase request was based on financial information for the period from January through December 2005. After an analysis of these records, the UAFCB has determined that Point Arena should be allowed an interim increase of $20,000 or 10% relative to 2005 gross revenues in order for the utility to meet its cash-flow requirements.

A public meeting was held on November 30, 2006 and was attended by approximately ten members of the public including four customers present. The balance of the meeting consisted of comments and questions by the customers.

Notice of the public meeting was mailed to customers 20 days prior to the meeting date. The meeting was scheduled on a Thursday evening to ensure maximum public participation since many of the customers work during the weekday hours.

DISCUSSION

The Branch made an independent analysis of Point Arena's summary or earnings. Appendix A shows Point Arena's and the Branch's estimates of the summary of earnings at present, requested, and recommended rates for Test Year 2007. The final column shows the recommended rates by the Branch.

Appendix B includes Branch recommended tariff rates. Appendix D includes Branch recommended adopted quantities.

UAFCB completed a cash flow analysis of Point Arena and recommended a 10% interim rate increase which became effective on January 11, 2007 by Res. No. W-4627.

A staff report was issued in September 2007. On October 18, 2007, Point Arena officials met with the Branch in a settlement meeting to discuss the difference in expenses between the Point Arena's request and the recommendations in the staff report. Appendix A includes a Summary of Earnings with the agreed upon expenses derived at the meeting.

During this meeting, the rent pertaining to the Point Arena Waterworks site (Water Works Main Distribution Tank Property) was resolved. The property in question is a 3.74-acre potion of Mendocino County Assessor's Parcel Number 027-131-04, which is

zoned as Public Facilities. This land is owned by Mr. and Mrs. Hay and they have been maintaining the property and paying property taxes on this parcel. Point Arena

requested $13,750 rent annually. The agreed upon rent for this parcel is $6,875 per year. In addition, other properties, including the Garcia Well site, were settled upon at reasonable fair market value in accordance with the lease agreements with the property owners.

In D.92-03-093, effective April 30, 1992, the Commission adopted the operating ratio method of ratemaking as an alternative to the rate of return method for Class C and Class D utilities. When applying the operating ratio method, the utility's revenue requirement is defined as the sum of its operating and maintenance expenses, depreciation expenses, income and other taxes, and an operating margin. 

Ordering Paragraph 8 of D.92-03-093 states Branch is directed to calculate rates using both return-on-rate base and operating ratio methods of ratemaking for Class C and Class D water companies requesting new rates and to recommend to the Commission that rate method that produces the higher result. However, during the settlement meeting discussed above, Point Arena and staff agreed upon applying a rate of return of 13.25% on rate base, yielding net revenue of $45,515 in the summary of earnings.

A comparison of customers bills at present rates (based on the Interim Rates which became effective on January 30, 2007 by Res. No. W-4627) and recommended rates is shown in Appendix C. The Adopted Quantities are shown in Appendix D.

COMPLIANCE

Point Arena has no outstanding Commission compliance orders requiring system improvements. In addition, Point Arena has been filing annual reports as required and the tariff schedules in its tariff book are up to date. However, Point Arena needs to update the following: Rules 3, Application for Service; 5, Special Information Required on Forms; 7, Deposits; 10, Disputed Bills; 15, Main Extensions; 16, Service Connections, Meters, and Customer's Facilities; 20, Water Conservation; and 21, Fire Protection; and Forms 2, Customer's Deposit Receipt; and 3, Bill for Service

Res. No. W-4540 dated June 16, 2005, states that at the completion of the general rate case application, the authorized but not collected revenues shall be adjusted for the cash flow revenues received by the utility and the difference recovered by surcharge or refunded by surcredit. Point Arena should be authorized to file an advice letter to collect these uncollected revenues from January 30, 2007, the effective date of interim rates to the effective date of the rates authorized in this resolution.

COMMENTS

Public Utilities Code (PU Code) §311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission.   PU Code §311(g)(2) provides that this 30-day period may be waived or reduced upon stipulation of all parties in the proceeding.

The 30-day comment period for the draft resolution was neither waived nor reduced.  Accordingly, this draft resolution was mailed to parties for comments, and will be placed on the Commission's agenda no earlier than 30 days from the date of mailing of this resolution to the parties.

FINDINGS

1. The Division's recommended summary of earnings (Appendix A) is reasonable and should be adopted.

2. The rates recommended by the Division (Appendix B) are reasonable and should be adopted.

3. The quantities (Appendix D) used to develop the Division's recommendations are reasonable and should be adopted.

4. The rate increase authorized herein is justified and the resulting rates are just and reasonable.

5. Point Arena should be required to update the following: Rules 3, Application for Service; 5, Special Information Required on Forms; 7, Deposits; 10, Disputed Bills; 15, Main Extensions; 16, Service Connections, Meters, and Customer's Facilities; 20, Water Conservation; and 21, Fire Protection; and Forms 2, Customer's Deposit Receipt; and 3, Bill for Service.

THEREFORE IT IS ORDERED THAT:

1. Authority is granted under Public Utilities Code, Section 454, for Point Arena Water

Works, Inc. (Point Arena) to file an advice letter incorporating the Summary of Earnings and revised rate schedule attached to this resolution as Appendices A and B, respectively, and concurrently to cancel its presently effective rate Schedule No. 1, General Metered Service. The effective date of the revised schedule shall be five days after the date of filing.

2. Point Arena is authorized to increase annual revenues by $30,974 or 15.23%. This results in Test Year 2007 revenue of $234,314.

3. The quantities (Appendix D) used to develop the Division's recommendations are adopted.

4. At the completion of this general rate case, Point Arena is authorized to file an advice letter to recover by surcharge the authorized, but not collected revenues from January 30, 2007, the effective date of the interim rates.

5. Point Arena is ordered to update the following: Rules 3, Application for Service; 5, Special Information Required on Forms; 7, Deposits; 10, Disputed Bills; 15, Main Extensions; 16, Service Connections, Meters, and Customer's Facilities; 20, Water Conservation; and 21, Fire Protection; and Forms 2, Customer's Deposit Receipt; and 3, Bill for Service.

6. This resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed, and adopted at a conference of the Public Utilities Commission of the State of California held on February 28, 2008; the following Commissioners voting favorably thereon:

PAUL CLANON

Executive Director

APPENDIX A

		Summary of Earnings-Test Year 2007
		Utility Estimated				Branch Estimated				Recommended Rates
	Present		Requested		Present		Requested		At Present		Settled Rates
Category	Rates		Rates		Rates		Rates		Rates		Rate of Return
Operating Revenues:
Flat Rate	0		0		0		0		0		0
Metered	203,340		243,495		203,340		243,495		203,340		234,314
Private Fire Protection	0		0		0		0		0		0
Total	203,340		243,495		203,340		243,495		203,340		234,314
Operating Expenses
Purchased Water	0		0		0		0		0		0
Purchased Power	12,198		13,677		13,677		13,677		13,677		13,677
Purchased Chemicals	0		0		0		0		0		0
Other Volume Related Expenses	626		669		669		669		669		669
Employee Labor	5,592		6,415		6,415		6,415		6,415		6,415
Materials	10,751		3,358		3,358		3,358		3,358		3,358
Contract Work	11,298		11,963		11,963		11,963		11,963		11,963
Water Testing	2,094		2,355		2,355		2,355		2,355		2,355
Transportation Expense	5,660		8,270		8,270		8,270		8,270		7,640
Other Plant Maintenance Expense	7,023		22,120		22,120		22,120		22,120		15,638
Office Salaries	7,971		28,334		28,334		28,334		28,334		25,000
Management Salaries	18,578		22,785		22,785		22,785		22,785		21,500
Employee Pension and Benefits	0		0		0		0		0		0
Uncollectibles	2,259		2,780		2,780		2,780		2,780		2,648
Office Service & Rentals	19,886		6,824		6,824		6,824		6,824		6,500
Office Supplies & Expenses	5,055		5,405		5,405		5,405		5,405		5,000
Professional Services	24,203		12,000		12,000		12,000		12,000		12,000
Insurance	8,067		8,293		8,293		8,293		8,293		7,752
Regulatory Commission Exp.	88,509		4,000		4,000		4,000		4,000		4,000
General Expenses	1,204		1,635		1,635		1,635		1,635		1,635
minus expenses capitalized									0
Total Operating Expenses	230,974		160,883		160,883		160,883		160,883		147,750
Total Deductions									0
Depreciation Expense	11,320		9,753		9,753		9,753		9,753		9,753
Property Taxes	3,540		5,464		5,464		5,464		5,464		5,464
Payroll Taxes	0		4,342		4,342		4,342		4,342		4,342
Taxes other than Income	10,499		3,210		3,210		3,210		3,210		3,210
States Income Tax	N/A		N/A		N/A		N/A		N/A		6,506
Federal Income Tax	N/A		13,930		13,930		13,930		13,930		11,774
Total Deductions	25,359		36,699		36,699		36,699		36,699		41,049
Total Deductions and Expenses			197,582		197,582		197,582		197,582		188,799
Net Revenue	-52,993		45,913		5,758		45,913		5,758		45,515
Rate Base:									0
Average Plant	1,229,682		1,343,682		1,343,682		1,343,682		1,343,682		1,343,682
Average Depr. Res.	388,353		414,087		414,087		414,087		414,087		414,087
Net Plant	841,329		929,595		929,595		929,595		929,595		929,595
Less: Advances/Contributions	563,370		547,389		547,389		547,389		547,389		547,389
Add: Supplies/working Cash	13,425		13,425		13,425		13,425		13,425		13,425
Rate Base	291,384		395,631		343,508		343,508		343,508		343,508
Rate of Margin / Rate of Return				25.00%		1.68%		13.37%		1.68%		13.25%

APPENDIX B

Schedule No. 1

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service

TERRITORY

The City of Point Arena and vicinity and Whiskey Shoals Subdivision Unit Nos. 1, 2, & 3, Mendocino County.

RATES

Quantity Rates:

All water, per 100 cubic feet ............. $ 5.66 (I)

Service Charge: Per Meter

Per Month

For 5/8 x ¾-inch meter ..................... $ 41.42 (I)

For ¾-inch meter ..................... $ 62.13 |

For 1-inch meter ..................... $ 103.54 |

For 1-1/2-inch meter ................. ... $ 207.08 |

For 2-inch meter..................... $ 331.33 |

For 3-inch meter..................... $ 621.25 |

For 4-inch meter........................ $1035.42 |

For 6-inch meter........................ $1035.42 (I)

The Service Charge is a readiness-to-serve charge which is applicable to all metered service, and to which is added the monthly charge computed at the Quantity Rates.

SPECIAL CONDITIONS

1. In addition to the above rates and charges rendered to all bills under this Schedule, a surcharge will be

added as set forth in Schedule No. 2-X, General Metered Surcharge.

2. All bills are subject to the reimbursement fee set forth in Schedule No. UF.

3. Point Arena Associates and Wharf Masters Inn will be charged the 4-inch meter charge pursuant to Resolution No. W-4233

4. In addition to the above rates and charges rendered to all bills under this schedule, a surcharge in the amount of $2.98 per month will be charged to each customer for a period of 6 years from the effective date of Advice Letter No. 49-A. This surcharge is specifically for the recovery of expenses established by the memorandum account authorized by Res. W-4356, dated October 24, 2002, and the Joint Stipulation attached to D.04-09-025, dated September 2, 2004.

APPENDIX C

POINT ARENA WATER WORKS, INC.

COMPARISON OF RATES

Test Year 2007

Service Charges for 5/8 x ¾-inch meter:

Per Service Connection Billed Monthly

Present Recommended Rates Rates $ Increase % Increase

For 5/8 x ¾ $35.45 $41.42 $5.97 16.8%

Quantity Charge for all meter sizes:

Present Rate* Recommended Rate % Increase

All water delivered per 100 cu. ft. $4.85 $5.66 16.7%

Average monthly customer bill at present and authorized rates for a 5/8 x ¾-inch meter service

using various quantities of water.

Usage Present Recommend

100 cu. ft. Rates Rates $ Increase % Increase

0 $ 35.45 $ 41.42 $ 5.97 16.8%

5 $ 59.70 $ 69.72 $10.02 16.8%

11 $ 88.80 $103.68 $14.88 16.8%

15 $108.20 $126.32 $18.12 16.7%

20 $132.45 $154.62 $22.17 16.7%

30 $180.95 $211.22 $30.27 16.7%

APPENDIX D

(Page 1 of 2)

POINT ARENA WATER WORKS, INC.

Adopted Quantities

Test Year 2007

Expenses:

1. Purchased power (Electric)

Vendor Pacific Gas & Electric Company

Schedules Schedule A-1 Small General Service

Effective Date January 1, 2006

2. Composite Rate $0.1721/kWh

Total Power Consumption in kWh 79,468 kWh

Total Purchased Power ($) $13,677

3. Number of Service Connections:

Metered Rate

5/8 x ¾-inch service 169

¾-inch service 7

1-inch service 9

2-inch service 6

4-inch service 0

6-inch service 2

Total Service Connections 193

4. Water Sales (Ccf) - Metered Customers: 15,035

APPENDIX D

(Page 2 of 2)

POINT ARENA WATER WORKS, INC.

Test Year 2007

TAX CALCULATIONS

Test Year 2007

Line No. Item State Tax Federal Tax

1. Operating Revenue $234,314 $234,314

2. O&M Expenses $147,750 $147,750

3. Taxes Other than Income $ 3,210 $ 3,210

4. Depreciation $ 9,753 $ 9,753

5. Taxable Income for State Tax $ 73,601

6. State Tax $ 6,506

7. Taxable Federal Income Tax $ 67,095

8. Federal Income Tax $ 11,774

9. Total Income Tax $ 18,280

California Corporate Franchise Rate 8.84%

Federal Income Tax Rate:

15% On first $50,000 of taxable income

$7,500 + 25% Of the amount over $50,000

CERTIFICATE OF SERVICE

I certify that I have by mail this day served a true copy of Draft Resolution W-4676 on all parties in this filing or their attorneys as shown on the attached list.

Dated January 29, 2008, at San Francisco, California.

/s/ JOSIE L. JONES

Josie L. Jones

NOTICE

Parties should notify the Division of Water and Audits, Third Floor, California Public Utilities Commission, 505 Van Ness Avenue, San Francisco, CA 94102, of any change of address to ensure that they continue to receive documents. You must indicate the Resolution number on which your name appears.

Service List

Draft Resolution W-4676

Joe Rouse

Independent Coast Observer

P. O. Box 1200

Gualala, CA 95445

Point Arena Water Works

P. O. Box 205

Point Arena, CA 95468

Marino A. Rodriguez

Public Utility Consultant

897 Canterbury Street

Salinas, CA 93906

City of Point Arena

Mayor Leslie Dahlhoff

P. O. Box 67

Point Arena, CA 95468-0067

Claudia Hillary

City of Point Arena

451 School Street

P. O. Box 67

Point Arena, CA 95468