9. Assignment of Proceedings

Loretta M. Lynch is the Assigned Commissioner and David K. Fukutome is the assigned ALJ in this proceeding.

1. The Settlement's resolution of issues related to unaccounted-for water, operation and maintenance expenses, administrative and general expenses, balancing and memorandum accounts, depreciation and rate base is reasonable.

2. If SRF funding is denied for two capital projects that are prudent, necessary and in the public interest, the Settlement's proposal to allow SJWC to recover the plant costs through advice letter filings is reasonable.

3. For six specified capital projects that are prudent, necessary and in the public interest, but where the timing of construction is not certain, the Settlement's proposal to allow SJWC advice letter recovery for the completed plant costs is reasonable.

4. The Settlement's resolution of other plant issues is reasonable.

5. The Settlement's proposed rate of return on equity of 9.9% is within the range of returns currently authorized by the Commission for Class A water utilities and is reasonable.

6. There is no financial attrition from 2004 to 2005.

7. The Settlement's proposed attrition allowance for 2006 includes the effects of operational attrition from 2004 to 2005 and is reasonable.

8. The Settlement's proposals for rate assistance for low-income customers and the rate design for resale service, private fire service, and residential fire sprinkler service are reasonable.

9. The Settlement is reasonable and in the public interest.

10. SJWC's proposal to recover costs accumulated in the Water Contamination Litigation Memorandum Account and the undercollection in the Balancing Account is unopposed.

11. VTA's assertion that it has the franchise authority of a municipality, as it relates to § 6297, is unsupported.

12. The use of a benefit analysis to determine cost responsibility for water main relocation projects is consistent with prior Commission decisions and is reasonable.

13. While prior Commission decisions have assigned all costs to the primary beneficiary of the project at issue, it is reasonable to consider an allocation of the costs between parties, if an allocation more fairly resolves the issue and the record supports such an allocation.

14. SJWC's time value of money adjustment to VTA's benefit analysis is reasonable and substantially reduces the estimated ratepayer benefit. There is also merit to SJWC's adjustments related to new fire hydrants and parallel mains.

15. Both SJWC and VTA mention, but do not quantify, factors that would either decrease or increase the estimated ratepayer benefit.

16. The ratepayer benefit related to the water main relocation projects at issue is much closer to SJWC's estimate of 4.7% of the project costs than to VTA's estimate of 37.4% of the project costs. As such VTA is the primary beneficiary, and consistent with prior Commission decisions, it is reasonable for VTA to absorb all water main relocation costs at issue.

1. The Settlement is lawful and should be adopted.

2. SJWC should be allowed to establish surcharges to recover, over a twelve-month period, the costs accumulated in the Water Contamination Litigation Memorandum Account and the undercollection in the Balancing Account.

3. Final rates in this decision should include quantity rate increases authorized by Resolution W-4479, effective July 13, 2004.

4. Interim rates authorized by D.03-12-007 should be adjusted, back to the interim rate effective date of January 1, 2004, to reflect the rates adopted by this decision. SJWC should be allowed to recover the associated revenue differential, for the interim rate period.

5. All water main relocation project costs at issue in this proceeding should be allocated to VTA.

6. VTA's request for additional ratepayer funding of water main relocation costs should be denied.

7. Today's order should be made effective immediately.

ORDER

IT IS ORDERED that:

1. The San Jose Water Company (SJWC) and Office of Ratepayer Advocates settlement (Settlement), dated January 26, 2004 and revised March 8, 2004, is adopted.

2. Santa Clara Valley Transportation Authority's request that ratepayers fund additional water main relocation costs is denied.

3. SJWC 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 included as Appendix B to this order. The revised tariff schedules shall apply to service rendered on and after their effective date.

4. Advice letters for authorized rate increases for 2005 and 2006 shall be filed in accordance with General Order 96, 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 SJWC'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 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 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.

5. SJWC is authorized to file advice letters seeking Commission authorization for rate offsets for the capital projects specified in Sections 6.2 through 6.15 of the Settlement adopted by this decision. SJWC is authorized to file one such advice letter in each of the years 2004, 2005 and 2006. Each advice letter filing shall be made after the projects contained in the filing have been completed and placed in service, with costs for each project not to exceed that specified in the Settlement.

6. As set forth in Appendix F, SJWC is authorized to implement surcharges for recovery of $70,606 from the Water Contamination Litigation Memorandum Account and $328,068 for the undercollection in the Balancing Account.

7. SJWC is authorized to file an Advice Letter, as soon as recorded information for the period January 1, 2004 to the effective date of new rates is available, to implement a surcharge to recover the difference between revenues authorized by this decision and interim rate revenues. The surcharge shall be calculated based upon the rate differential between the interim rates authorized for SJWC as of January 1, 2004 and the final rates ultimately adopted in this decision, and shall use actual recorded sales and actual recorded customer numbers by meter size in the calculation of such surcharge.

8. Application 03-05-035 is closed.

This order is effective today.

Dated August 19, 2004, at San Francisco, California.

Appendices A-G

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