4. ORA Protest and Analysis

This application was filed on July 6, 2001, and ORA's Water Branch filed a protest on August 6, 2001. At a prehearing conference on October 22, 2001, ORA explained that it was concerned with creation of a small water company when a larger water company nearby might better serve the new developments. It also questioned whether safeguards might be appropriate to protect ratepayers.

The administrative law judge (ALJ) directed ORA to meet with counsel and management of Cañada Woods to determine whether ORA concerns could be met without the need for hearings. Meetings subsequently were held, and ORA issued its report and analysis on January 4, 2002. Neither Cañada Woods nor ORA now seeks hearing on this matter.

ORA notes that the Commission's policy for certifying water companies (Resolution M-4708, dated August 28, 1979) is to deny certificates "for a potentially viable [water] system if another entity such as a public utility or public company is able to serve the proposed area...." The Monterey Division of California-American Water Company (Cal-Am) surrounds the proposed service area of Cañada Woods and, according to ORA, properly should be the public utility to provide service.

In this case, however, the developers asked Cal-Am to serve but Cal-Am declined on the basis of inadequate water supply. Cal-Am claims that Order 95-10 of the State Water Resources Control Board requires that any new source of water that Cal-Am acquires shall be used to reduce the utility's overdraft from the Carmel River. If the development were to become a part of Cal-Am, the customers there would lose the supply of water now available to them and would be forced to conserve along with Cal-Am's other Monterey Division users. ORA states that it met with the Water Resources Control Board and confirmed this information.

Pursuant to Resolution M-4708, ORA also investigated whether a certificate should be denied on the basis that the new services "are likely to be unviable or marginally viable...." Viability is demonstrated ordinarily through the following tests: (1) proposed revenues would be generated at a rate level not greatly exceeding that set by other purveyors in the area; (2) the utility would be self-sufficient, and (3) the applicant would have a reasonable opportunity to derive a fair return on its investment.

ORA concludes that applicant appears to satisfy these criteria. For customers in modest homes at lower elevations, the utility's proposed rates would result in a monthly bill of $27 for 800 cubic feet of water, whereas Cal-Am's customers pay $30.08 for the same amount of water. ORA states that customers with luxury homes on mansion-sized lots would make up the difference to bring the average monthly revenue per customer to $249 in 2010. Overall, ORA states that Cañada Water operations would generate a return of 13% for the foreseeable future, based on the company's estimated summary of earnings for potable water and reclaimed water. Ratebase per customer is comparable to Cal-Am, primarily because the developer will have contributed some 85% of plant.

The estimated summary of earnings for Cañada Woods for the years 2001, 2005 and 2010 is as follows:

	Canada Woods Water Company
	Potable Water			Reclaimed Water
	2001	2005	2010	2001	2005	2010
REVENUE	$300,427	$810,700	$1,089,637	$24,194	$57,813	$73,232
EXPENSES	$248,928	$611,456	$919,186	$17,085	$38,138	$54,823
Uncollectibles	300	811	1,090	0	0	0
Depreciation Expense	7,260	32,881	33,719	766	2,097	2,253
Property Taxes	2,148	7,176	5,801	325	787	753
Income Taxes	11,147	60,401	47,177	1,605	6,405	5,596
Total Deductions	$269,783	$712,725	$1,006,973	$19,781	$47,427	$63,425
NET REVENUE	$30,644	$97,975	$82,664	$4,413	$10,386	$9,807
Average Plant	$2,136,204	$7,188,225	$7,666,525	$392,925	$867,100	$898,350
Avg. Accum. Depreciation	103,962	736,000	1,764,547	4,134	71,351	168,128
Net Plant	2,032,242	6,452,225	5,901,978	388,791	795,749	730,222
Less: Advances	0	0	0	0	0	0
Contributions	1,817,401	5,734,657	5,321,916	356,275	717,068	654,915
Deferred Income Tax	368	15,927	21,949	97	2,079	4,549
Plus: Working Cash	20,750	51,005	76,691	1,424	3,178	4,569
Mat'l & Supplies	500	1,007	1,074	100	114	114
Rate Base	$235,723	$753,653	$635,878	$33,943	$79,894	$75,441
Rate of Return	13.00%	13.00%	13.00%	13.00%	13.00%	13.00%
Number of Customers	62	215	365	1	1	1
Rate Base per Customer	$3,802	$3,505	$1,742	$33,943	$79,894	$75,441
Average Revenue per Customer per Month	$404	$314	$249	$2,016	$4,818	$6,103

ORA in its analysis of the proposed sewer system found that the average bill for sewer service per customer would be $64 per month in the year 2010. ORA notes that California Utilities Service, which serves the Salinas area, charges $42.17 per month currently and is the process of requesting a 25% increase.

In summary, ORA concludes that applicant should be granted authority to operate a water system, including reclaimed water, and a sewer system. However, it recommends that such authorization include certain conditions that are summarized below.