Conclusions of Law

1. The agreed outcomes set forth in the All Parties Joint Stipulations and Comparison Exhibit filed by San Gabriel and ORA are not "stipulations" as defined in Rule 51.1. Rather, they are joint recommendations arrived at as a result of each party's having re-examined its earlier conclusions in light of evidence presented by the other.

2. One of the conditions under which the Commission in Resolutions W-4089 and W-4094 authorized San Gabriel and others to establish water quality litigation memorandum accounts was that all expenses associated with the memorandum account must be offset by insurance proceeds and/or proceeds from the polluters before rate relief may be granted.

3. The $3.5 million BPOU settlement amount constitutes proceeds from the polluters within the meaning of Resolutions W-4089 and W-4094.

4. It would be inequitable and unreasonable to grant San Gabriel's request to recover from ratepayers the litigation costs booked in its water quality litigation memorandum account while allowing San Gabriel to book as shareholder profit proceeds from polluters received for, in part, San Gabriel's granting a waiver of those litigation costs.

5. San Gabriel should be allowed to continue to book its LA Division pursuit-of-contaminators litigation costs into the water quality litigation memorandum account, and required to record as offsetting entries the $3.5 million BPOU settlement amount at issue here and any similar amounts in the future.

6. The final water quality litigation memorandum account balance associated with pursuit of contaminators cannot be known and should not be adjudicated until most or all of San Gabriel's litigation against polluters in LA Division has been concluded.

7. San Gabriel should collect subject to refund the amount of its adopted revenue requirement that results from our computational assumption that the American Jobs Creation Act of 2004 does not apply, until our order finally establishing in a future proceeding the actual tax benefit, if any, conveyed to San Gabriel under the Act. San Gabriel should report the amount collected and the status of its tax liability under the Act in each general rate case until we have made a final determination.

8. San Gabriel should be authorized to implement the rate changes set forth in this order.

9. The revised rates set forth in Attachment B are justified.

10. This decision should be made effective immediately to allow San Gabriel to put the revised rates into effect as near as possible to the first day of the test year.

ORDER

IT IS ORDERED that:

1. San Gabriel Valley Water Company (San Gabriel) is authorized to file in accordance with General Order 96 and make effective on not less than five days' notice revised tariff schedules reflecting the adopted rates for test year 2005/2006 included as Attachment B to this order. The revised tariff schedules shall apply to service rendered on and after the date this decision is mailed.

2. Not later than May 15, 2006 and May 15, 2007, San Gabriel shall file advice letters in conformance with General Order 96 proposing new Los Angeles County Division (LA Division) revenue requirements for escalation years 2006/2007 and 2007/2008 respectively, and corresponding revised tariff schedules. San Gabriel's advice letters shall follow the escalation procedures set forth in the Commission's Rate Case Plan for Class A Water Utilities, and shall include appropriate supporting workpapers. San Gabriel shall adjust the escalation year revenue requirement to the extent its rate of return on rate base for LA Division for the twelve months ending March 31, 2006 and March 31, 2007, taking into account the rates then in effect and normal ratemaking adjustments, differs from the rate of return found reasonable in this order. The revised tariff schedules shall take effect on July 1, 2006 and July 1, 2007, respectively, and shall apply to service rendered on and after their effective dates. The proposed, revised revenue requirement and rates shall be reviewed by the Commission's Water Division. Water Division shall inform the Commission if it finds that the proposed rates do not conform to the Rate Case Plan, this order, or other Commission decisions, in which case all revenues collected under the revised rates shall be subject to refund until the Commission has decided the matter.

3. San Gabriel is authorized to recover by advice letter(s) 80% and 25% respectively of the salaries and pension and benefit costs of one new Water Quality Specialist position and one new Water Treatment Operator III position in LA Division, and LA Division's allocated share of the Assistant Purchasing Agent and Assistant Engineer positions in general office, after each of those positions is filled. This authorization is subject to the two advice letter per fiscal year limitation set forth in Ordering Paragraph 11 below.

4. The capital structure, cost of debt, rate of return on equity, and rate of return on rate base shown in Table 2 are adopted for LA Division for the 2005/2006 through 2007/2008 general rate case cycle.

5. The summary of earnings presented in Attachment A-1, the adopted 2005/2006 and 2006/2007 rate bases in Attachment A-2, and the quantities and calculations included as Attachment C to this order that underlie them, are adopted.

6. San Gabriel shall credit the $3.5 million Baldwin Park Operable Unit settlement amount at issue in this proceeding, and any other, similar contamination litigation settlements amounts it has received or will receive in the future that are not designated for capital and operating costs of remediation facilities, to its LA Division ratepayers through the water quality litigation memorandum account, effective on the date each amount was or is received.

7. San Gabriel's request to amortize the amount in its LA Division water quality litigation memorandum account associated with pursuit of contaminators is denied. That component of the final water quality litigation memorandum account balance cannot be known and will not be adjudicated until most or all of San Gabriel's litigation against polluters in LA Division has been concluded

8. San Gabriel is authorized to file an advice letter to begin recovering the balance as of December 31, 2004 in its water quality litigation memorandum account associated with its defense of water quality litigation for LA Division. The advice letter shall include proposed tariff sheets and work papers, and shall go into effect upon Water Division's determination that it complies with this decision and the Commission's established procedures for recovering memorandum account balances.

9. San Gabriel shall continue to record in its LA Division water quality litigation memorandum account, for later evaluation and possible recovery, its ongoing defense-related water quality litigation costs and all defense-related amounts received from polluters and insurers.

10. San Gabriel is authorized to recover by advice letter(s) the capital costs of the 16 projects designated as "Advice Letter" in Appendix C to the All Parties Joint Stipulation and Comparison Exhibit included as Attachment E to this order, after each project is completed and placed in service. The project by project cost upon which each offset request is based shall not exceed the Estimated Cost set forth in that Appendix. This authorization is subject to the two advice letter per fiscal year limitation set forth in Ordering Paragraph 11 below.

11. San Gabriel shall file no more than two advice letters during each fiscal year of this general rate case cycle implementing the LA Division payroll expense and capital project offset rate increases authorized in Ordering Paragraphs 3 and 10 of this order. San Gabriel may group multiple completed and in-service plant projects and/or personnel positions into each advice letter, and may time its filings as it sees fit. This limitation does not apply to other advice letter filings authorized by this order.

12. San Gabriel shall collect subject to refund the amount of its adopted revenue requirement that results from our computational assumption that the American Jobs Creation Act of 2004 does not apply, until our order finally establishing in a future proceeding the actual tax benefit, if any, conveyed to San Gabriel under the Act. San Gabriel shall report the amount so collected and the status of its tax liability under the Act in each general rate case until the Commission has made a final determination.

13. San Gabriel's request to add to its LA Division water quality memorandum account future expenditures related to water quality, as described in the application and discussed in the body of this decision, is denied.

14. San Gabriel's request to convert its LA Division purchased water, pumped water, and purchased power balancing accounts to full cost balancing accounts is denied.

15. San Gabriel is authorized to file an advice letter to begin amortizing the amounts recorded in its purchased water, pumped water, and purchased power balancing accounts as of December 31, 2004, or such later date as San Gabriel and the Commission's Water Division may jointly agree. Amortization in rates shall be subject to the Commission's and Water Division's standard procedures for validating the amounts claimed in such advice letters.

16. San Gabriel's requests in Application (A.) 04-09-005 are granted as set forth above, and in all other respects are denied.

17. A.04-09-005 is closed.

This order is effective today.

Dated July 21, 2005, at San Francisco, California.__

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