VII. Assignment of Proceeding

Carl Wood is the Assigned Commissioner and Janet A. Econome is the assigned ALJ in this proceeding.

Findings of Fact

1. The Redwood Valley District serves about 1,896 customers. Before Cal Water acquired the area that now comprises this district, six small water companies served these customers. The last rate increases for Redwood Valley District customers were authorized about seven years ago.

2. Cal Water and ORA agreed it would be reasonable, as well as more efficient and less burdensome, to stipulate to interim cost of capital calculations for this proceeding pending resolution of A.03-01-034.

3. In settlements, the parties do not fully litigate the issues but rather, make case-specific tradeoffs. We cannot determine on this record whether or not the tradeoffs made in A.03-01-034 are reasonable for this district.

4. The costs of the Lucerne treatment plant are large (about $1.3 million) and can have a large impact on rates.

5. The Armstrong, Noel Heights, Rancho del Paradiso, and Hawkins divisions are all located in Sonoma County. Also, Armstrong and Noel Heights' rate design has been combined in the past, prior to Dominguez acquiring these divisions. Therefore, a separate rate design for each of the Sonoma County divisions would change current practice with respect to Armstrong and Noel Heights.

6. Located in Marin and Sonoma Counties respectively, Coast Springs and Lucerne are more geographically isolated from the rest of the divisions and have unique issues which preclude us form directing a uniform rate design at this time.

Conclusions of Law

1. The adopted summaries of earnings presented in Appendix A, and the quantities and calculations included in Appendix D that underlie them, are reasonable for ratemaking purposes and should be adopted.

2. It is reasonable to adopt a ROR of 8.11% and a ROE of 9.32% for this proceeding.

3. The costs of the new Lucerne and Coast Springs treatment plants should not be included in Redwood Valley District's rate base in this decision.

4. Cal Water is not authorized to establish a memorandum account to track expenditures associated with the proposed Lucerne and Coast Springs treatment plants.

5. In the event that DWR does not approve the SDWSRF loan to fund the Lucerne and Coast Springs treatment plants, Cal Water should file an application if it wishes to increase rates to offset the increased rate base. Cal Water shall serve such application on, among other necessary persons, the service list of this proceeding.

6. A three-rate structure rate design should be adopted for this proceeding.

7. Cal Water may apply for attrition year adjustments for 2005 and 2006.

8. In the next general rate case, Cal Water should present direct testimony in the form of a separate exhibit demonstrating all of its efforts toward lifting the Coast Springs moratorium, including but not limited to showing that the company is in full compliance with D.03-03-037, D.99-07-041, and any other Coast Springs moratorium-related decisions that the Commission may issue between now and the next general rate case. Cal Water should also attach a copy of the cover page and ordering paragraphs of this decision as an exhibit to this testimony.

9. The revised rates and step increases set forth in Appendix B are justified.

10. Cal Water should be authorized to implement the rate changes set forth in this order.

11. This decision should be made effective immediately to allow Cal Water to earn the return found reasonable for it in test year 2004.

ORDER

IT IS ORDERED that:

1. California Water Service Company (Cal Water) is authorized to file in accordance with General Order 96, and make effective on not less than five days' notice, the revised tariff schedules for 2004 attached as Appendix B to this order. The revised tariff schedules shall apply to service rendered on and after their effective date. The revised tariff schedules shall be consistent with the summary of earnings and the revised schedules attached to this order.

2. Advice letters for 2005 and 2006 may be filed in accordance with General Order 96-A no earlier than November 1 of the preceding year. The filing shall include appropriate work papers. The increase shall be the amount authorized herein, or a proportionate lesser increase if Cal Water's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the adopted change to this pro forma test, for the 12 months ending September 30 of the preceding year, exceeds the lower of (a) the rate of return on rate base found reasonable by the Commission for Cal Water for the preceding year in the then most recent rate decision, or (b) the return on rate base authorized herein for the preceding year. The advice letters shall be reviewed by the Commission's Water Division for conformity with this decision, and shall go into effect upon the Water Division's determination of compliance, not earlier than January 1 of the year for which the increase is authorized, or 30 days after filing, whichever is later. The tariffs shall be applicable to service rendered on or after the effective date. The Water Division shall inform the Commission if it finds the proposed increase does not comply with this decision or other Commission requirements.

3. The summaries of earnings presented in Appendix A, and the quantities and calculations included as Appendix D which underlie them, are adopted.

4. In the event that the Department of Water Resources does not approve the Safe Drinking Water State Revolving Fund loan to fund the Lucerne and Coast Springs treatment plants, Cal Water shall file an application if it wishes to increase rates to offset the increase to rate base. Cal Water shall serve such application on, among other necessary persons, the service list of this proceeding.

5. A three-rate structure rate design is adopted for this proceeding.

6. In the next general rate case, Cal Water shall present direct testimony in the form of a separate exhibit demonstrating all of its efforts toward lifting the Coast Springs moratorium, including but not limited to showing that the company is in full compliance with Decision (D.) 03-03-037, D.99-07-041, and any other Coast Springs moratorium-related decisions that the Commission may issue between now and the next general rate case. Cal Water shall also attach a copy of the cover page and ordering paragraphs of this decision as an exhibit to this testimony.

7. In its next general rate case, Cal Water shall explore, among other rate designs, a uniform rate design proposal.

8. This proceeding is closed.

This order is effective today.

Dated March 16, 2004, at San Francisco, California.

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