In its test year 1997 GRC, CalAm proposed and the Commission authorized a temporary, three-year experimental rate design intended to increase conservation incentives. For the past three years, residential customers have been billed in three quantity blocks with rates set at 75%, 100% and 200% of a "standard" quantity rate; apartments and multi-family premises billed in a single block at 75%; and commercial customers billed in a single block at 100%. Residential customers' service charges have been set at a level to recover 25% of fixed costs; low-income customers pay no service charges; and apartment, multi-family and commercial customers pay a service charge set at the 50% of fixed costs level, consistent with the Commission's long-established rate design policy. Revenue foregone through lowered service charges to the first two groups has been collected through a quantity surcharge on those groups' usage. In the Commission-ordered conservation effectiveness study submitted in this proceeding, CalAm found that implementing higher rate blocks did have the desired effect on at least 50% of the targeted customers. CalAm concluded that additional, higher rate blocks would extend the conservation response to more customers.

In this Application, CalAm initially proposed that the current rate design remain in effect, its structure unmodified, until June 30, 2000. The company would bill customers at rates increased proportionately to meet whatever higher revenue requirement the Commission were to approve. CalAm would also generate special information-only bills for the first six months to let customers know what they would have been charged under a new, per capita rate design to be implemented July 1, 2000.

Under the Application-proposed per capita rate design, beginning July 1, 2000, all customers would be billed according to a new, five quantity block structure at increasing rates of 75%, 100%, 150%, 200% and 400% of the standard quantity rate. For residential customers, the usage level at which each quantity rate would apply would be determined by number of residents and lot size. For non-residential customers, the same standard quantity rate and percentages would apply to customer-specific usage blocks defined based on historic usage, water audits, MPWMD allocations, comparisons to like properties and other factors as necessary. Service charges would be determined as they were before July 1, 2000, except that apartment and multi-family would move to the residential service charge rate. The Settlement at Section 11.01 capsulizes CalAm's motivation for requesting a per capita rate design:

This design was prepared in response to Order WR 95-10 of the State Water Resource Control Board ("SWRCB") and MPWMD's Ordinance No. 92. SWRCB's Order 95-10 mandates that Cal-Am reduce its production from the Carmel Valley to 11,285 acre feet annually or suffer potentially large fines. Ordinance No. 92 was adopted both to limit production to comply with SWRCB's Order 95-10 and to limit production during the time of physical drought. The main purpose of Cal-Am's proposed design is to take a proactive response to the legal restrictions imposed by SWRCB's Order No. 92 and [it] was the product of an extensive set of public hearings and workshops and the joint product of MPWMD, Cal-Am, and community representatives and organizations.

As noted earlier, CalAm also proposed a separate rate design for customers in the Highway 68 corridor, termed the Hidden Hills and Ryan Ranch areas. Because these customers are served by supplies independent of the Carmel River system, they are isolated from the problems affecting other Monterey Division users. No party took issue in the proceeding with CalAm's proposal to base Hidden Hills and Ryan Ranch customers' rate design on the current experimental three-year rate design increased by the overall percentage of increase requested in the GRC, and the remainder of this rate design discussion does not apply to those customers.

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