VII. Comments on Proposed Decision

The proposed decision of the ALJ in this matter was mailed to the parties in accordance with Section 311(d) of the Public Utilities Code and Rule 77.1 of the Rules of Practice and Procedure. Comments were filed by __________________ and reply comments were filed by ______________________________.

Findings of Fact

1. The Settlement, attached as Appendix A to this decision, resolves all issues between RRB and SJWC except for ROE for the test years 2001-2002.

2. No difference exists between RRB and SJWC regarding capital structure and cost of long-term debt.

3. SJWC requests a constant ROE of no less than 11.75% for the test years.

4. RRB recommends a constant ROE of 8.40% for the test years.

5. The financial models offered in this proceeding are not determinative and must be tempered with a great deal of judgment. They are useful in establishing a range of required returns to consider in selecting the authorized return and in evaluating trends of investor expectations.

6. The reasonable range of ROE suggested by the output of the financial models utilized by the parties is 8.40% to 11.75%.

Conclusions of Law

1. The Settlement proferred by RRB and SJWC complies with the criteria established in D.91-12-019. The Settlement: (1) is approved by all active parties, which represent affected interests; (2) no component of the settlement conflicts with applicable law or prior decisions; and (3) we have sufficient information to conclude that it is a reasonable compromise.

2. The Settlement is reasonable in light of the whole record, consistent with applicable law, and in the public interest. The Commission should adopt the Settlement in its entirety as a resolution of all issues, except for ROE.

3. Considering the evidence on the market conditions, trends, interest rate forecasts, quantitative financial models, risk factors, and interest coverage presented by the parties and applying our informed judgment, a constant ROE of 10.20% is just and reasonable for the years 2001-2003 for SJWC.

4. SJWC should be authorized revenue increases for the years 2001-2003 consistent with the Stipulation and ROE adopted in this decision.

5. The increased revenue requirement authorized by this order for the years 2001-2003 should be reflected in rates consistent with the rate design previously approved for SJWC, and should be implemented through advice letter filings. Such advice letter filings shall be filed no later than November 15 of each year.

6. SJWC should be authorized an attrition year increase of $8,622,100 for the year 2003. The attrition increase should be implemented through an advice letter filed no later than November 15, 2002.

ORDER

IT IS ORDERED that:

1. San Jose Water Company's (SJWC) adopted cost of capital is as follows:

Year 2001

Component

Capital Ratio

Cost Factor

Weighted Cost

Long-Term Debt

47.76%

8.17%

3.90%

Common Equity

52.24

10.20

5.33

Total

100.00%

9.23%

Year 2002

Component

Capital Ratio

Cost Factor

Weighted Cost

Long-Term Debt

47.99%

8.20%

3.94%

Common Equity

52.01

10.20

5.31

Total

100.00%

9.25%

2. The adopted return on equity (ROE) is 10.20%.

3. For the year 2001, an ROE of 10.20% results in a corresponding return on rate base of 9.23%, requiring a revenue requirement increase of $8,240,700, or 7.23%.

4. For the year 2002, an ROE of 10.20% results in a corresponding return on rate base of 9.25%, requiring a revenue requirement increase, of $5,011,000, or 4.10%.

5. For the year 2003, SJWC is authorized an attrition increase of $3,930,100 (3.09%).

6. SJWC is authorized to file in accordance with General Order (GO) 96 and make effective not sooner than January 1, 2001, revised tariffs implementing the rate increase for 2001 shown in Appendix B to this order. The revised rates shall apply to service rendered on and after the tariffs' effective date.

7. On or after November 5, 2001, SJWC is authorized to file an advice letter, with appropriate workpapers, requesting the step-rate increase for 2002 included in Appendix C, or to file a proportionate lesser increase for those rates in Appendix B in the event that a SJWC's rate of return on ratebase, adjusted to reflect rates then in effect and normal ratemaking adjustments for the 12 months ended September 30, 2001, exceeds 9.23%. This filing shall comply with GO 96-A. The requested step rates shall be reviewed by the Commission's Water Division (WD) to determine their conformity with this order and shall go into effect upon WD's determination of conformity. WD shall inform the Commission if it finds that the proposed step rates are not in accord with this decision or other Commission decisions. The effective date of the revised schedules shall be not earlier than January 1, 2002, or 30 days after filing, whichever is later. The revised schedules shall apply only to service rendered on and after their effective date.

8. On or after November 5, 2002, SJWC is authorized to file an advice letter, with appropriate workpapers, requesting the step-rate increase for 2003, included in Appendix C or to file a proportionate lesser increase for those rates in Appendix B in the event that SJWC's rate of return on ratebase, adjusted to reflect rates then in effect and normal ratemaking adjustments for the 12 months ended September 30, 2002, exceeds 9.25%. This filing shall comply with GO 96-A. The requested step rates shall be reviewed by WD to determine their conformity with this order and shall go into effect upon WD's determination of conformity. WD shall inform the Commission if it finds that the proposed step rates are not in accord with this decision or other Commission decisions. The effective date of the revised schedules shall be not earlier than January 1, 2003, or 30 days after filing, whichever is later. The revised schedules shall apply only to service rendered on and after their effective date.

9. The Settlement attached as Appendix A to this decision is adopted.

10. Application 00-02-035 is closed.

This order is effective today.

Dated , at San Francisco, California.

APPENDIX A

In the Matter of the Application of SAN JOSE )

WATER COMPANY, (U-168-W), a Corporation, ) Application 00-02-035

for an Order Authorizing it to Increase Rates for )

Water Service. )

______________________________________ )

SETTLEMENT

1.00 GENERAL

1.01 The Parties to this Settlement before the California Public Utilities Commission (Commission) are San Jose Water Company ("SJWC") and the Ratepayer Representation Branch ("RRB") of the Water Division, - collectively, "the Parties." The Parties, desiring to avoid the expense, inconvenience, and uncertainty attendant to litigation of the matters in dispute between them, have agreed on this Settlement ("Settlement), which they now submit for approval.

1.02 In addition, since this Settlement represents a compromise by them, the Parties have entered into each stipulation on the basis that its approval by the Commission not be construed as an admission or concession by any Party regarding any fact or matter of law in dispute in this proceeding. Furthermore, the Parties intend that the approval of this Settlement by the Commission not be construed as a precedent or statement of policy of any kind for or against any Party in any current or future proceeding.

1.03 The Parties agree that no signatory to this Settlement or any member of RRB assumes any personal liability as a result of their agreement. The Parties agree that no legal action may be brought by any Party in any state or federal court, or any other forum, against any individual signatory representing the interests of RRB, attorneys representing RRB, or the RRB itself related to this Settlement. All rights and remedies of the Parties are limited to those available before the Commission.

1.04 No Party to this Settlement should provide, either privately or publicly, before this Commission any rationale or strategy for support of any compromise reached herein beyond that stated herein unless otherwise agreed to by the Parties.

1.05 All issues between the Parties have been resolved except return on equity, which will be litigated by the Parties and resolved by the Commission.

1.06 The following discussion addresses each item stipulated by the Parties. Attached as Appendix A to this Settlement are tables which show RRB's and SJWC's stipulated estimates.

APPENDIX A

2.0 COST OF CAPITAL

RRB and SJWC agree to a ratio of 47.76% debt to 52.24% equity for Test Year 2001 and 47.99% debt to 52.01% equity for Test Year 2002. Based upon interest information from DRI and Moody's, RRB and SJWC agree to a weighted cost of debt of 8.17% for Test Year 2001 and 8.20% for Test Year 2002. ROE remains at issue before the Commission. The original and stipulated positions of RRB and SJWC are listed below.

Capital Structure and cost of debt for Test Year 2001:


			Original Positions					Settlement
	SJWC			RRB
	Capital Structure	Cost		Capital Structure			Cost	Capital Structure	Cost
Long-Term Debt	47.76%	8.04%			47.76%	8.02%		47.76%	8.17%
Common Equity	52.24%	11.75%			52.24%	8.40%		52.24%	Not Settled

Capital Structure and cost of debt for Test Year 2002:


			Original Positions					Settlement
	SJWC			RRB
	Capital Structure	Cost		Capital Structure			Cost	Capital Structure	Cost
Long-Term Debt	47.99%	8.04%			47.99%	8.00%		47.99%	8.20%
Common Equity	52.01%	11.75%			52.01%	8.40%		52.01%	Not Settled

3.0 CONSUMPTION AND OPERATING REVENUES

3.01 Average Number of Connections

The initial differences between SJWC and RRB in the estimates of the average number of connections were due to variations in methodology. For both Test Years, the Parties estimated the same number of projected connections for customers in the following classes: Industrial, Resale, Recycled Water, and Flat Rate Services (2001). For both Test Years, SJWC accepts RRB's estimates of the number of projected connections in the following classes: Residential & Business, Public Authority, Other, and Flat Rate Services (2002). The original and stipulated estimates are set forth below:

APPENDIX A


Test Year	Original Positions		Settlement
2001	SJWC	RRB
Residential & Business	209,215	209,227	209,227
Industrial	77	77	77
Public Authorities	1,638	1,642	1,642
Resale	31	31	31
Other	200	206	206
Recycled Water	23	23	23
Flat Rate Services	2,639	2,639	2,639


Test Year	Original Positions		Settlement
2002	SJWC	RRB
Residential & Business	210,215	210,233	210,233
Industrial	77	77	77
Public Authorities	1,648	1,654	1,654
Resale	31	31	31
Other	200	201	201
Recycled Water	23	23	23
Flat Rate Services	2,639	2,694	2,694

3.02 Average Consumption per Service for each Customer Class

Only slight differences existed between the original estimates proposed by SJWC and RRB. Generally, these differences were due to interpretation of statistical data. SJWC accepts RRB's estimates of average consumption for Resale and Other classes. RRB accepts SJWC's estimates of average consumption for Residential & Business, Industrial, Public Authority, and Recycled Water. The original and stipulated estimates are set forth below:


Test Year	Original Positions (ccf/yr)		Settlement (ccf/yr)
2001 & 2002	SJWC	RRB
Residential & Business	264	266	264
Industrial	6,552	6,552	6,552
Public Authorities	2,300	2,300	2,300
Resale	8,226	8,323	8,323
Other	400	408	408
Recycled Water	17,478	17,478	17,478

3.03 Unaccounted Water

The Parties agreed to Unaccounted Water of 8% for both Test Years 2001 and 2002 based on the average volume of unaccounted water during the most recent years.

APPENDIX A

3.04 Total Sales and Supply

SJWC and RRB agree that total sales should be adjusted to reflect stipulated customers and stipulated average consumption per service for each class for Test Years 2001 and 2002.


Sales
Test Year	2001 (Kccf)	2002 (Kccf)
Residential & Business	55,236		55,502
Industrial	505		505
Public Authorities	3,777		3,804
Resale	258		258
Other	84		82
Subtotal	59,860		60,151
Unaccounted for Water	5,205		5,230
Total Potable Sales	65,065		65,381
Recycled Water	402		402
Total Sales	65,467		65,783


Supply
Test Year	2001 (Kccf)	2002 (Kccf)
Ground Supply	31,907		31,555
Purchased Water	28,736		29,404
Surface Supply	4,422		4,422
Total Potable Supply	65,065		65,381
Recycled Water	402		402
Total Supply	65,467		65,783

4.00 OPERATION AND MAINTENANCE

SJWC and RRB had similar estimates for most Operation and Maintenance, except for the following items:

4.01 Purchased Water

The Parties agree to use the most recent purchased water ($1,166.23/MG = $380/AF) and pump taxes ($951.40/MG = $310/AF) from Santa Clara Valley Water District effective July 1, 2000, as approved for SJWC's Advice Letter No. 321.

4.02 Inflation

SJWC accepts RRB's updated non-labor inflation which is based on the latest national numbers forecasted by Standard and Poor's DRI. RRB and SJWC agree that the appropriate escalation is 3.5% in order to reflect the higher cost of living in Silicon Valley.

APPENDIX A


			Original Positions					Settlement
	SJWC			RRB
	Non-Labor	Labor		Non-Labor			Labor	Non-Labor	Labor
2001	0.9%	4.8%			0.8%	2.4%		0.8%	3.5%
2002	0.9%	4.8%			1.4%	2.2%		1.4%	3.5%

4.03 Purchased Power

The Parties agree that Purchased Power should be adjusted to reflect the stipulated consumption and production for Test Years 2001 and 2002 using a methodology of applying a factor of $.087951/kWh to a projected kWh/Kccf Ratio of .7133.

4.04 Labor

RRB and SJWC agree that Labor should be adjusted to the stipulated escalation of 3.5% in order to properly reflect the higher cost of living in Silicon Valley.

4.05 Conservation

The Parties agree that SJWC should be allowed the regular ongoing annual expense of $32,000 for conservation. SJWC also intends to launch a program to retrofit and repair toilets and showerheads and to repair leaks in certain targeted areas. SJWC and RRB agree that SJWC should be authorized to establish a balancing account for expenses associated with this program. The balancing account would become effective at the inception of new rates in January, 2001. SJWC and RRB agree that this balancing account should be capped at a total annual expenditure of $50,000.


	Original Positions		Settlement
	SJWC	RRB
2001	$83,000	$0	$32,000
2002	$83,000	$0	$32,000

4.06 Transportation

SJWC accepts RRB's methodology for calculation of the Transportation Depreciation Expense (five-year average of 23.1%) and RRB's adjusted escalation for Insurance (1.4%).

Depreciation:


	Original Positions		Settlement
	SJWC	RRB
2001	$392,100	$342,500	$342,500
2002	$427,100	$295,000	$295,000

APPENDIX A

Insurance:


	Original Positions		Settlement
	SJWC	RRB
2001	$140,800	$131,500	$131,500
2002	$147,800	$133,300	$133,300

4.07 Non-Tariffed Services

The Parties have agreed that the adjustment to the revenue requirement associated with SJWC's non-tariffed activities should be based on the methodology set forth in Decision 00-07-018, dated July 6, 2000 (R.97-10-049).


	Original Positions		Settlement
	SJWC	RRB
2001	$259,000	$806,000	$431,879
2002	$262,000	$809,000	$436,630

5.00 ADMINISTRATIVE AND GENERAL EXPENSES

SJWC and RRB had similar estimates for most Administrative and General expenses, except for the following items:

5.01 Salaries

RRB and SJWC agree to a revised escalation of 3.5% in order to reflect the increased cost of labor in Silicon Valley.

5.02 Office Supplies and Other Expenses

SJWC accepts RRB's methodology of using an adjusted average of the last three years to forecast Office Supplies and Other Expenses for Test Years 2001 and 2002.

5.03 Liability Insurance

SJWC and RRB agree to use an escalation of 5% for Test Year 2001 and Test Year 2002, based upon information recently provided by SJWC's insurance carrier.

5.04 Provision for Injuries and Damages

RRB accepts SJWC's estimate of a provision for injuries and damages of $200,000 for Test Year 2001 and Test Year 2002.

5.05 Pensions, Benefits and Post-Retirement Benefits Other Than Pensions

SJWC accepts RRB's estimates in the "Report on the Results of Operations," except for two items:

APPENDIX A

Medical Insurance

RRB and SJWC agree to escalation of 9% for Test Year 2001 and Test Year 2002 for medical insurance based on information provided by SJWC's carriers.

Dental Insurance

RRB and SJWC agree to escalation of 9% for Test Year 2001 and Test Year 2002 for dental insurance based on information provided by SJWC's carriers.

5.06 Dues and Memberships

SJWC accepts RRB's estimate of dues and memberships of $102,400 for Test Year 2001 and $104,100 for Test Year 2002.

5.07 Administrative and General Transfer

SJWC accepts RRB's estimate of Administrative and General Transfer.


	Original Positions		Settlement
	SJWC	RRB
2001	$1,361,100	$1,251,900	$1,251,900
2002	$1,443,800	$1,286,600	$1,286,600

6.0 TAXES ON INCOME

RRB and SJWC agree that the estimate of Income Taxes should be adjusted to reflect the terms of this Settlement.

7.0 NET-TO-GROSS MULTIPLIER

The Parties agree to use a Net-to-Gross Multiplier of 1.7894, based on the adopted rates for franchise tax, uncollectibles, state corporation tax, and federal tax.

8.0 PLANT IN SERVICE

The Parties agree that items to be included for ratemaking by Advice Letter should be allowed in rates only if they are completed during either the two Test Years or the Attrition Year (2001-2003).

RRB accepts SJWC's estimates of Plant in Service, except for the following items:

8.01 Saratoga Water Treatment Plant.

RRB and SJWC agree that the estimates of the Saratoga Water Treatment Plan for Year 2000 and Test Year 2001 should be excluded from rates until CALTRANS completes repairs in the area. RRB and SJWC agree that the project should be included in ratebase upon completion of the repairs with the filing and acceptance of an advice letter requesting an offset capped at $1,818,000. RRB accepts SJWC's revised estimate for 2002 with escalation of 1.7% per year to be added to the cost if the advice letter is filed after 2001.

APPENDIX A

8.02 Paving for Willow Glen Way and Almaden Way.

SJWC agrees that the paving of Willow Glen Way Yard for $46,100 and Almaden Way for $52,400 can be delayed beyond 2002 and therefore should be removed from the budgets for the Test Years.

8.03 Pump Station at Lexington Reservoir.

The Parties agree that the pump station at Lexington Reservoir should be removed from the budget for Test Year 2001. RRB and SJWC agree that SJWC should be authorized to file an Advice Letter capped at $2,000,000 to begin recovering the costs of this project once it has been placed into service. RRB accepts SJWC's revised estimate for 2002 with escalation of 1.7% per year to be added to the cost if the advice letter is filed after 2001.

8.04 Water Diversion Facility at Montevina.

SJWC accepts RRB's exclusion of $1,091,000 for a project to divert water at Montevina from the budget for Test Year 2001. RRB agrees that SJWC should be authorized to submit an Advice Letter specifying the technical need and the least expensive alternative not to exceed $1,091,000 if the proposed requirements in the Enhanced Surface Water Treatment Rule become effective prior to the filing of the next General Rate Case. RRB accepts SJWC's revised estimate for Test Year 2002 with escalation of 1.7% per year to be added to the cost if the advice letter is filed after 2001.

8.05 Roof at Overlook Reservoir

SJWC accepts RRB's exclusion of the replacement of the roof at Overlook Reservoir at a cost of $50,000 from the budget in Test Year 2002.

8.06 Pumphouses at High Street and Mireval Stations

SJWC accepts RRB's exclusion from Test Year 2002's budget of the replacement of two pumphouses at High Street Station and Mireval Station for $22,900 and $22,380, respectively.

8.07 Remote Telemetry Units

SJWC accepts RRB's revised estimate for Remote Telemertry Units of $1,937,320 for Test Year 2002. The reduction of $97,680 from SJWC's estimate is due to a revision in schedule. SJWC had previously reduced the estimate by $321,600 subsequent to submission of the original budget.

8.08 Vehicles

RRB accepts SJWC's reduction of $15,971 in the cost of vehicles estimated for Test Year 2000 due to purchase of a less expensive model.

APPENDIX A

8.09 Standby Generators

RRB agrees that SJWC needs two standby generators, and that the $195,000 originally removed will be included in the budget for Test Year 2001.

8.10 Aqua Ammonia System at Montevina

SJWC accepts RRB's elimination of an Aqua Ammonia System at Montevina. RRB and SJWC agree that, if applicable regulations change prior to filing of the next GRC, SJWC should be allowed to file an advice letter for inclusion in ratebase of this item.

8.11 Replacement of Mains

SJWC accepts RRB's adjustments for the replacement of mains. RRB removed $2,224,400 of replacements from Test Year 2000's budget, while adding $3,147,000 to Test Year 2001's budget, in accordance with SJWC's Infrastructure Replacement Program previously submitted to the Commission.

8.12 Interest During Construction and Acquistion Adjustments

SJWC accepts RRB's estimates of Interest During Construction and Acquisition Adjustments which remove $1,652,000 from SJWC's ratebase estimated in the Application.

8.13 Inflation

SJWC accepts RRB's estimates of inflation of 1.4% for Test Year 2001 and 1.7% for Test Year 2002, except where noted previously in this Settlement, and agrees to apply them instead of 5%.

9.0 DEPRECIATION

RRB and SJWC agree that Depreciation Expense for Test Years 2001 and 2002 should be based on the stipulated composite of 3.01%, which is in line with SJWC's historical rate.


	Original Positions		Settlement
	SJWC	RRB
2001	3.54%	2.91%	3.01%
2002	3.43%	2.91%	3.01%

10.0 RATEBASE

RRB and SJWC agree that Ratebase should be based on stipulated estimates as follows:


	Original Positions (000s)		Settlement (000s)
	SJWC	RRB
2001	$216,279.7	$211,936.3	$ 212,518.9
2002	$228,772.5	$223,761.1	$ 224,113.7

APPENDIX A

10.01 General Ratebase

SJWC and RRB agree that $68,128 associated with the acquisition of the Campbell Water Company in 1980 is in fact an organizational expense and not a cost associated with issuance of bonds, and that SJWC acted in good faith when the expense was originally classified. SJWC and RRB further agree that due to the passage of time the $68,128 should be written off and removed from ratebase.

10.02 Working Cash

SJWC accepts RRB's deduction of deposits for portable meters ($247,000) from the estimate of Working Cash for Test Year 2001 and Test Year 2002. RRB accepts SJWC's inclusion of the Injuries and Damages Reserve ($667,942), Bad Debt Reserve ($100,000), and Minimum Bank Balance ($200,000) in the estimate of Working Cash for Test Year 2001 and Test Year 2002.

Deposits for Portable Meters. SJWC accepts RRB's recommendation to deduct $247,000 in deposits for meters from the estimate of Working Cash for Years 2000-2002.

Reserve for Injuries and Damages and Bad Debts. RRB agrees that operational cash and ratebase should not be reduced by $767,942, as SJWC has demonstrated that these funds have in fact been provided by shareholders and not by ratepayers.

Minimum Bank Balance. RRB agrees that SJWC should be allowed to include $200,000 as an allowance for a minimum balance, as set forth in the application, based upon the agreement SJWC has with its bank.

11.0 OTHER ITEMS

11.01 Radon and Arsenic Memorandum Account.

SJWC withdraws its proposal to book the costs and expenses of removing Radon and Arsenic into a Water Quality Memorandum Account. The Parties agree, however, that SJWC should be allowed to file an application seeking recovery of these costs if the facilities are required by a final policy of the United States Environmental Protection Agency.

11.02 Drinking Water Source Assessment and Protection Program

The Parties agree that SJWC should be authorized to establish a memorandum account capped at $35,000 to track expenses incurred to comply with the Drinking Water Source Assessment and Protection Program required pursuant to the Safe Drinking Water Act.

APPENDIX A

11.03 Water Quality Memorandum Account

SJWC and RRB agree that SJWC should be allowed to recover the undercollection in its Water Quality Memorandum Account of $911,422 as of August 31, 1999, by imposing a surcharge of $0.0073 / ccf for 24 months.

11.04 Catastrophic Events Memorandum Account

SJWC and RRB agree that SJWC should be allowed to recover the undercollection in its Catastrophic Events Memorandum Account of $401,124 as of August 31, 1999, by imposing a surcharge of $0.0034/ccf for 24 months.

11.05 Excess Capacity is Stipulated as Discussed in Section 4.07.

11.06 Fire Hydrants

SJWC and RRB agree that SJWC should be authorized to file an advice letter no more than once a year after plant has been place in service to begin recovering in rates the cost to implement the City of San Jose's Fire Hydrant Program as detailed in SJWC's Results of Operations Report.

11.07 Full Cost Balancing Account for Water Production

SJWC withdraws the request for a Full Cost Balancing Account for Water Production.

11.08 Depreciation

SJWC withdraws the request to change its method of depreciation. Depreciation will be treated as stipulated in Section 9.0.

11.09 Capitalization of Expense of Painting Tanks

RRB agrees that SJWC should be authorized to capitalize the expenses of painting tanks in excess of $100,000 per project.

11.10 Rates for Private Fire Service

The Parties agree that SJWC should be allowed to increase the flat fee for private fire service from $5.00 per inch per month to $5.50 per inch per month in Test Year 2001 and to $6.00 per inch per month in Test Year 2002. This increase will bring SJWC's charges in line with charges of other Class A water utilities.

12.0 AUDIT

12.01 Ratebase

Organizational Expense is Stipulated as Discussed in Section 10.01

Working Cash is Stipulated as Discussed in Section 10.02.

APPENDIX A

12.02 Expenses

Bank Charges for the City of Cupertino

SJWC and RRB agree that bank charges for Cupertino are already allocated from SJWC to Cupertino, as discussed in Section 5.07.

Provision for Injuries and Damages are Stipulated as Discussed in Section 5.04.

Directors' Pensions

RRB and SJWC agree that, in line with the common practice of the industry, directors' pensions should be included for ratemaking as follows: $113,210 for Test Year 2001 and $114,110 for Test Year 2002.

Retirement is Stipulated as Discussed in Section 5.05

Corporate Expenses

RRB and SJWC agree that certain corporate expenses should be allowed for ratemaking ($194,764), since SJWC has proven that they are incurred in the provision of service to the ratepayers.

Legal Expenses

RRB and SJWC agree that certain legal expenses ($16,870) should be allowed for ratemaking since they are not associated with the issuance of bonds for the City of Cupertino.

RATEPAYER REPRESENTATION SAN JOSE WATER COMPANY

BRANCH OF THE WATER DIVISION

By: ___________________________ By: ________________________

Donald McCrea Palle Jensen

Project Manager Director of Regulatory Affairs

Ratepayer Representation Branch San Jose Water Company

Water Division 374 West Santa Clara Street

California Public Utilities Commission San Jose, CA 95196

505 Van Ness Avenue (408) 279-7970

San Francisco, CA 94102

(415) 703-3087

Dated: Dated:

A.00-02-035

Settlement

Appendix A

Page 1 of 3

SAN JOSE WATER COMPANY

(U-168-W)

STIPULATED QUANTITIES

2001

2002

Water Production:

MG

Kccf

MG

Kccf

Purchased Water

21,496

28,736

21,996

29,404

Surface Water

3,308

4,422

3,308

4,422

Well Supply

23,865

31,903

23,603

31,553

Recycled Water

301

402

301

402

Total Production

48,669

65,463

48,907

65,781

2001

2002

Purchased Water/Pump Tax Rates:

Purchased Water Costs Per MG

$1,166.23

$1,166.23

Pump Tax Cost per MG

$951.40

$951.40

Purchased Water/Pump Tax Costs:

Purchased Water Costs

$25,069,280

$25,652,175

Pump Tax Cost

$22,705,161

$22,456,257

Total Purchased Water/Pump Tax Costs

$47,774,441

$48,108,432

Purchased Power:

Mixed Power Cost ($/kWh)

$0.087951

$0.087951

Total Power Usage (kWh)

46,405,000

46,632,000

Total Power Costs

$4,081,366

$4,101,331

Other:

Conservation Expense

$32,000

$32,000

Net-to-Gross Multiplier

1.7894

1.7894

Uncollectible Rate

0.1774%

0.1774%

Business License & Local Franchise Tax Rate

0.3119%

0.3119%

California Corporate Franchise Tax Rate

8.84%

8.84%

Federal Tax Rate

35.00%

35.00%

A.00-02-035

Settlement

Appendix A

Page 2 of 3

SAN JOSE WATER COMPANY

(U-168-W)

STIPULATED QUANTITIES

Number of Services by Meter Size:

Schedule No. 1

Schedule No. 6

Schedule No. RCW

2001

2002

2001

2002

2001

2002

5/8 x 3/4 inch

29,896

30,040

0

0

0

0

3/4 inch

147,161

147,868

1

1

0

0

1 inch

24,673

24,813

5

5

0

0

1-1/2 inch

3,427

3,445

3

3

0

0

2 inch

4,248

4,297

16

16

0

0

3 inch

1,220

1,269

3

3

5

5

4 inch

332

334

2

2

16

16

6 inch

150

151

0

0

0

0

8 inch

31

31

1

1

1

1

10 inch

14

17

0

0

1

1

12 inch

0

0

0

0

0

0

211,152

212,265

31

31

23

23

Metered Sales (Kccf):

No. of Services

Usage ( Kccf)

Avg. Usage (ccf)

2001

2002

2001

2002

2001

2002

Residential & Business

209,227

210,233

55,236

55,502

264

264

Industrial

77

77

505

505

6,552

6,552

Public Authority

1,642

1,654

3,777

3,804

2,300

2,300

Resale

31

31

258

258

8,323

8,323

Other

206

201

84

82

408

408

211,183

212,196

59,860

60,151

Private Fire

2,639

2,694

213,822

214,890

59,860

60,151

Water Loss (8.0%)

5,201

5,228

Total Potable Water Production

65,061

65,379

Recycled Water

23

23

402

402

17,478

17,478

Total Water Production (Kccf)

65,463

65,781

A.00-02-035

Settlement

Appendix A

Page 3 of 3

SAN JOSE WATER COMPANY

(U-168-W)

STIPULATED RATE BASE

(Thousands of Dollars)

2001

2002

Item

Utility Plant

$458,633.1

$484,579.1

Materials & Supplies

$560.7

$560.7

Working Cash

$6,327.8

$6,394.7

Depreciation Reserve

($147,092.4)

($158,499.1)

Advances

($44,082.4)

($44,976.8)

Contributions

($42,555.4)

($43,871.2)

Reserve for Amortization

($226.0)

($242.3)

Deferred Taxes

($25,512.8)

($26,309.7)

Deferred Tax

($412.9)

($412.9)

Rate Base, Taxed Contributions

$2,911.4

$2,898.0

Rate Base, Taxed Advances

$3,967.8

$3,993.2

Rate Base

$212,518.9

$224,113.7

SAN JOSE WATER COMPANY

(U-168-W)

COMPARISON OF UTILITY AND RRB SUMMARY OF EARNINGS

TEST YEAR 2001

PRESENT RATES

(Thousands of Dollars)

Utility

Exceeds

SJWC

RRB

RRB

Original

Revised

Difference

Percent

Revised

Original

Operating Revenue

$111,769.7

$114,031.0

$0.0

0.00%

$114,031.0

$112,394.0

Operating Expenses

Operations & Maintenance

$19,105.0

$18,659.5

$0.0

0.00%

$18,659.5

$18,115.4

Purchased Water

$23,419.0

$25,069.0

$0.0

0.00%

$25,069.0

$23,419.0

Pump Taxes

$20,861.0

$22,705.0

$0.0

0.00%

$22,705.0

$21,174.0

Purchased Power

$4,080.0

$4,081.4

$0.0

0.00%

$4,081.4

$4,110.0

Uncollectibles

$198.0

$202.0

$0.0

0.00%

$202.0

$199.0

Administrative & General

$8,928.0

$8,536.8

$0.0

0.00%

$8,536.8

$8,075.5

Depreciation & Amortization

$14,132.0

$11,833.4

$0.0

0.00%

$11,833.4

$11,258.3

Taxes Other Than Income

$4,206.6

$4,178.8

$0.0

0.00%

$4,178.8

$4,158.9

State Corporation Franchise Tax

$657.2

$550.1

$0.0

0.00%

$550.1

$894.2

Federal Income Tax

$3,670.4

$3,204.8

$0.0

0.00%

$3,204.8

$4,598.6

Total Operating Expenses

$99,257.2

$99,020.8

$0.0

0.00%

$99,020.8

$96,002.9

Net Operating Revenue

$12,512.5

$15,010.2

$0.0

0.00%

$15,010.2

$16,391.1

Rate Base

$216,279.7

$212,518.9

$0.0

0.00%

$212,518.9

$211,936.3

Return on Rate Base

5.79%

7.06%

7.06%

7.73%

SAN JOSE WATER COMPANY

COMPARISON OF UTILITY AND RRB SUMMARY OF EARNINGS

TEST YEAR 2002

PRESENT RATES

(Thousands of Dollars)

Utility

Exceeds

SJWC

RRB

RRB

Original

Revised

Difference

Percent

Revised

Original

Operating Revenue

$112,299.0

$114,576.9

$0.0

0.00%

$114,576.9

$112,932.0

Operating Expenses

Operations & Maintenance

$20,063.0

$19,365.8

$0.0

0.00%

$19,365.8

$18,648.3

Purchased Water

$23,964.0

$25,652.0

$0.0

0.00%

$25,652.0

$23,964.0

Pump Taxes

$20,629.0

$22,456.0

$0.0

0.00%

$22,456.0

$20,944.0

Purchased Power

$4,100.0

$4,101.3

$0.0

0.00%

$4,101.3

$4,130.0

Uncollectibles

$199.0

$203.0

$0.0

0.00%

$203.0

$200.0

Administrative & General

$9,365.3

$8,918.9

$0.0

0.00%

$8,918.9

$8,273.7

Depreciation & Amortization

$14,547.1

$12,701.9

$0.0

0.00%

$12,701.9

$12,002.6

Taxes Other Than Income

$4,400.3

$4,352.3

$0.0

0.00%

$4,352.3

$4,317.8

State Corporation Franchise Tax

$415.6

$417.8

$0.0

0.00%

$417.8

$625.1

Federal Income Tax

$2,886.6

$2,778.0

$0.0

0.00%

$2,778.0

$3,620.5

Total Operating Expenses

$100,569.9

$100,947.0

$0.0

0.00%

$100,947.0

$96,726.0

Net Operating Revenue

$11,729.1

$13,629.9

$0.0

0.00%

$13,629.9

$16,206.0

Rate Base

$228,772.5

$224,113.7

$0.0

0.00%

$224,113.7

$223,761.1

Return on Rate Base

5.13%

6.08%

6.08%

7.24%

SAN JOSE WATER COMPANY

(U-168-W)

COMPARISON OF UTILITY AND RRB SUMMARY OF EARNINGS

TEST YEAR 2001

PROPOSED RATES

(Thousands of Dollars)

Utility

Exceeds

SJWC

RRB

RRB

Original

Revised

Difference

Percent

Revised

Original

Operating Revenue

$127,845.0

$126,095.0

$6,659.0

5.58%

$119,436.0

$114,222.7

Operating Expenses

Operations & Maintenance

$19,105.0

$18,637.4

($12.0)

-0.06%

$18,649.4

$18,088.6

Purchased Water

$23,419.0

$25,069.0

$0.0

0.00%

$25,069.0

$23,419.0

Pump Taxes

$20,861.0

$22,705.0

$0.0

0.00%

$22,705.0

$21,174.0

Purchased Power

$4,080.0

$4,081.4

$0.0

0.00%

$4,081.4

$4,111.0

Uncollectibles

$198.0

$224.0

$12.0

5.66%

$212.0

$228.0

Administrative & General

$8,928.0

$8,536.8

$0.0

0.00%

$8,536.8

$8,075.5

Depreciation & Amortization

$14,132.4

$11,833.4

$0.0

0.00%

$11,833.4

$11,258.3

Taxes Other Than Income

$4,256.7

$4,216.5

$20.8

0.50%

$4,195.7

$4,158.9

State Corporation Franchise Tax

$2,073.9

$1,720.0

$586.8

51.78%

$1,133.2

$1,055.4

Federal Income Tax

$9,177.5

$7,724.8

$2,323.4

43.01%

$5,401.4

$5,231.0

Total Operating Expenses

$106,231.5

$104,748.3

$2,931.0

2.88%

$101,817.3

$96,799.7

Net Operating Revenue

$21,613.5

$21,346.7

$3,728.0

21.16%

$17,618.7

$17,423.0

Rate Base

$216,279.7

$212,518.9

$0.0

0.00%

$212,518.9

$211,936.3

Return on Rate Base

9.99%

10.04%

1.75%

8.29%

8.22%

SAN JOSE WATER COMPANY

(U-168-W)

COMPARISON OF UTILITY AND RRB SUMMARY OF EARNINGS

TEST YEAR 2002

PROPOSED RATES

(Thousands of Dollars)

Utility

Exceeds

SJWC

RRB

RRB

Original

Revised

Difference

Percent

Revised

Original

Operating Revenue

$131,185.0

$129,667.9

$6,623.0

5.38%

$123,044.9

$116,797.9

Operating Expenses

Operations & Maintenance

$20,063.0

$19,338.6

($12.2)

-0.06%

$19,350.8

$18,621.2

Purchased Water

$23,964.0

$25,652.0

$0.0

0.00%

$25,652.0

$23,964.0

Pump Taxes

$20,629.0

$22,456.0

$0.0

0.00%

$22,456.0

$20,944.0

Purchased Power

$4,100.0

$4,101.3

$0.0

0.00%

$4,101.3

$4,130.0

Uncollectibles

$199.0

$230.0

$12.0

5.50%

$218.0

$234.0

Administrative & General

$9,365.3

$8,918.9

$0.0

0.00%

$8,918.9

$8,273.7

Depreciation & Amortization

$14,547.1

$12,701.9

$0.0

0.00%

$12,701.9

$12,002.6

Taxes Other Than Income

$4,459.2

$4,399.5

$20.8

0.48%

$4,378.7

$4,317.8

State Corporation Franchise Tax

$2,079.9

$1,747.7

$583.6

50.13%

$1,164.1

$965.9

Federal Income Tax

$8,895.7

$7,587.6

$2,105.4

38.40%

$5,482.2

$4,969.7

Total Operating Expenses

$108,302.2

$107,133.5

$2,709.6

2.59%

$104,423.9

$98,422.9

Net Operating Revenue

$22,882.8

$22,534.4

$3,913.4

21.02%

$18,621.0

$18,375.0

Rate Base

$228,772.5

$224,113.7

($8.9)

0.00%

$224,122.6

$223,761.1

Return on Rate Base

10.00%

10.05%

1.75%

8.31%

8.21%

(END OF APPENDIX A)

APPENDIX B

Page 1

Scheduled No. 1

GENERAL METERED SERVICE

APPLICABILITY

Applicable to general metered water service.

TERRITORY

Portions of Cupertino, San Jose, and Santa Clara, and in Campbell, Los Gatos, Monte Sereno, and Saratoga and in contiguous territory in the County of Santa Clara.

RATES

Quantity Rates:

Per 100 cu. ft. .................................................................. $1.4952 (I)

Service Charges: Per Meter Per Month

For 5/8 x ¾-inch meter ......................................... $ 8.64 (I)

For ¾ -inch meter ........................................ 8.64 |

For 1-inch meter ......................................... 15.00 |

For 1-1/2-inch meter ......................................... 36.60 |

For 2-inch meter ........................................ 58.80 |

For 3-inch meter ........................................ 114.00 |

For 4-inch meter ......................................... 188.40 |

For 6-inch meter ......................................... 357.60 |

For 8-inch meter ........................................ 600.00 |

For 10-inch meter ........................................ 790.00 (I)

The service charge is a readiness-to-serve charge which is applicable to all metered service and to which is added the charge for water used computed at the Quantity Rate.

SPECIAL CONDITIONS

1. Customers who receive water deliveries for agricultural purposes under this schedule, and who present evidence to the utility that such deliveries qualify for the lower pump tax rates levied by the Santa Clara Valley Water District for agricultural water, shall receive a credit of $0.6405 cents per 100 cubic feet on each water bill for the quantities of water used during the period covered by that bill.

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

APPENDIX B

Page 2

Scheduled No. 1B

GENERAL METERED SERVICE WITH

AUTOMATIC FIRE SPRINKLER SYSTEM

APPLICABILITY

Applicable to all detached single family structures whose automatic fire sprinkler system is served through the meter providing residential water service.

TERRITORY

Portions of Cupertino, San Jose, and Santa Clara, and in Campbell, Los Gatos, Monte Sereno, and Saratoga and in contiguous territory in the County of Santa Clara.

RATES

Quantity Rates:

Per 100 cu. ft. .................................................................. $1.4952 (I)

Service Charges: Per Meter Per Month

For 5/8 x ¾-inch meter ......................................... $ 8.64 (I)

For ¾ -inch meter ........................................ 8.64 |

For 1-inch meter ......................................... 15.00 |

For 1-1/2-inch meter ......................................... 36.60 |

For 2-inch meter ........................................ 58.80 (I)

Upsize Charges:

For ¼-inch meter upsize ....................................... $ 1.25

For ½-inch meter upsize ....................................... 2.50

For ¾-inch meter upsize ....................................... 3.75

For 1-inch meter upsize ....................................... 5.00

APPENDIX B

Page 3

Scheduled No. 1B

GENERAL METERED SERVICE WITH

AUTOMATIC FIRE SPRINKLER SYSTEM

(continued)

1. Any service to a residential customer who requires a larger water meter because of fire flow requirement to a fire sprinkler system will be billed (i) a meter service charge, for the appropriate meter size determined based on the normal water use of the customer excluding the fire flow requirement; and (ii) an upsize charge, determined by the difference between the actual meter size required including the fire flow requirement and the appropriate meter size required without the fire flow requirement; and (iii) the quantity rate based on the quantity of water used.

2. For the purpose of fire protection under this schedule, the utility will supply only such water at such pressure as may be available from time to time as a result of its operation of the system. Section 774 of the Public Utilities Code limits the liability of the utility resulting from a claim regarding the provision or maintenance of an adequate water supply, water pressure, equipment or other fire protection facility or service. Acceptance of service under this tariff is acknowledgment of notice of the provisions of Section 774 of the Public Utilities Code.

3. All bills are subject to the reimbursement fee set forth on Schedule No. UF.

APPENDIX B

Page 4

Scheduled No. 4

PRIVATE FIRE SERVICE

APPLICABILITY

Applicable to all water service furnished to privately owned fire protection systems.

TERRITORY

Portions of Cupertino, San Jose, and Santa Clara, and in Campbell, Los Gatos, Monte Sereno, and Saratoga and in contiguous territory in the County of Santa Clara.

RATES

Per Service Connection

Service Charges: Per Month

For each 2-inch meter ........................................ $12.00 (I|)

For each 3-inch meter ........................................ 18.00 |

For each 4-inch meter ........................................ 24.00 |

For each 6-inch meter ........................................ 36.00 |

For each 8-inch meter ........................................ 48.00 |

For each 10-inch meter ........................................ 60.00 |

For each 12-inch meter ........................................ 72.00 (I)

SPECIAL CONDITIONS

1. The fire protection service connection shall be installed by the utility and the cost paid by the applicant. Such payment shall not be subject to refund. The facilities paid for by the applicant shall be the sole property of the applicant.

2. If a distribution main of adequate size to serve a private fire protection system, in addition to all other normal service, does not exist in the street or alley adjacent to the premises to be served, then a service main from the nearest existing main of adequate capacity shall then be installed by the utility and the cost paid by applicant. Such payment shall not be subject to refund.

3. Service hereunder is for private fire protection systems to which no connections for other than fire protection purposes are allowed and which are regularly inspected by the underwriters having jurisdiction, are installed according to specifications of the utility, and are maintained to the satisfaction of the utility. The utility may install the standard detector type meter approved by the Board of Fire Underwriters for protection against theft, leakage or waste of water and the cost paid by the applicant. Such payment shall not be subject to refund.

APPENDIX B

Page 5

Scheduled No. 4

PRIVATE FIRE SERVICE

(Continued)

4. For water delivered for other than fire protection purposes, charges shall be made under Schedule No. 1, General Metered Service.

5. The utility undertakes to supply only such water at such pressure as may be available any time through the normal operation of its system. Section 774 of the Public Utilities Code limits the liability of the utility resulting from a claim regarding the provision or maintenance of an adequate water supply, water pressure, equipment or other fire protection facility or service. Acceptance of service under this tariff is acknowledgment of notice of the provisions of Section 774 of the Public Utilities Code.

6. The minimum diameter for fire protection service shall be two inches, and the maximum diameter shall be not more than the diameter of the main to which the service is connected.

7. All bills are subject to the reimbursement fee set forth on Schedule No. UF.

APPENDIX B

Page 6

Scheduled No. 6

RESALE SERVICE

APPLICABILITY

Applicable to all water service furnished for resale purposes.

TERRITORY

Portions of Cupertino, San Jose, and Santa Clara, and in Campbell, Los Gatos, Monte Sereno, and Saratoga and in contiguous territory in the County of Santa Clara.

RATES

Quantity Rates:

Per 100 cu. ft. .................................................................. $1.2225 (I)