C. Terms of Settlement

1. Overview

The parties to the settlement are Cal-Am, ORA, and LWWDAC.⁶ The settlement is comprehensive, covering all contested GRC issues in A.04-04-040 and A.04-04-041 for the two districts except the issue of rate assistance for low income customers; the settlement, including tariffs and GRC tables, Appendices 1-17 to the settlement, is attached as Appendix A to this decision. The settlement does not address the rate consolidation issues in A.04-08-013.

The settlement sets a separate revenue requirement and customer rates for the calendar years 2005, 2006, and 2007 for Sacramento and Larkfield districts based on agreements on the cost of capital, operating expenses, and plant in service. The parties to the settlement state that it represents a compromise and should be treated as an integrated agreement, so that if the Commission rejects any portion of this settlement, each party has the right to withdraw. Further, parties state that the settlement should not be construed as a precedent or statement of policy on any issue.

2. Issues Specific to the Sacramento District

Cost of capital, acquisition premium allowance, and attrition allowance are handled in the same manner for Sacramento and Larkfield. For Sacramento, the parties had no differences on water consumption, operating revenues, depreciation, and rate design other than a low income assistance program. For expenses and rate base not included in the settled plant issues, Cal-Am agrees with all of ORA's recommendations. The parties reached agreement on the following disputed plant in service issues:

	Amount Requested By Cal-Am (000s)	Settlement (000s)
2005
Recurring Projects	$3,136.3	$2,687.1
Well Rehabilitations	390.1	253.0
Wilbur Well	49.9	0.0
Pearl Heights Interconnection	149.6	0.0
Ethan Way Interconnection	947.7	0.0
Rosemont Tank	124.7	0.0
Water Trmt Facility - Arsenic	3,750.0	0.0
Water Trmt Facility - Parkway	478.8	478.8
Rehab of Wells - New Suburban	498.8	249.4
Rehab. of Wells - Blanket Project	349.3	349.3
Rehab. Of Wells - Two new	543.7	271.8
Storage Tanks - Roseville	467.9	467.9
Storage Tanks - Riolo	797.6	797.6
Pumps - Roseville Rd. Booster Sta.	499.0	499.0
Trans & Distrib. - Shenandoah	1,396.6	1,396.6
2006
Recurring Projects	$3,134.5	$2,685.5
Well Rehabilitations	299.0	253.0
Ethan Way Interconnection	498.5	0.0
Rosemont Tank	797.6	0.0
Water Trmt Facility - Arsenic	450.0	4,200.07
Water Trmt Facility - Parkway	1,435.5	1,435.5
Rehab. of Wells - Blanket Project	324.3	324.3
Trans & Distrib. - Shenandoah	2,392.8	2,392.8

3. Issues Specific to the Larkfield District

For Larkfield, there were no disputed issues on depreciation, and there is a uniform treatment with the Sacramento district on cost of capital, attrition, and acquisition premium allowance. Cal-Am agrees with ORA's position on water consumption and operating revenues; all parties made one modification to the estimated residential consumption estimate to reflect the residential fire service provision included at the request of LWWDAC. Cal-Am agrees with ORA's position on expense estimates and all rate base items not included in the settled plant issues.

The major issue in the settlement is the regulatory treatment of Well No. 6. Following extended discussions, and an earlier settlement agreement that LWWDAC later ceased to support, the parties to the settlement reached a detailed agreement, reflected in Section 15.3 of the settlement, that allows preliminary work and cost recovery to begin on Well No. 6, subject to continued study and review.⁸ The agreement also commences a water conservation program funded at the rate of $15,000 per year.

At the request of LWWDAC, the settlement also provides a lower monthly service charge for residential customers who have a fire sprinkler system connected to their domestic water system and who had to up-size their meter in order to do so. (See Section 20.1).

In addition, the parties reached agreement on the following disputed plant in service issues:

	Amount Requested By Cal-Am (000s)	Settlement (000s)
20049
Operations Bldg.	$ 12.0	$ 0.0
Small Main Program	74.9	0.0
North Wikiup Tank	64.9	64.7
2005
Construct Well #7	249.8	0.0
Small Main Program	74.9	0.0
Distrib. Monitoring Equipment	249.8	0.0
Recurring Projects	433.0	400.0
North Wikiup Tank	434.6	234.6
Improvement in Water Treatment	349.7	149.7
2006
Operations Bldg.	129.9	0.0
Construct Well #7	749.3	0.0
Small Main Program	74.9	0.0
Distrib. Monitoring Equipment	249.8	0.0
Recurring Projects	433.0	400.0
Improvement in Water Treatment	99.0	0.0
2007
Recurring Projects	433.0	400.0

⁶ The County of Santa Cruz is not a signatory to the settlement but did not challenge any provisions of the settlement. ⁷ The settlement removes Cal-Am's request for $3,750,000 in 2005. The parties agreed that the two projects in this category should only be recovered in rates upon their completion and placement into service, with the filing of an advice letter within the overall total construction dollar cap of $4,200.00. Cal-Am has applied for Proposition 50 funding for these projects. Any grant funds actually received will be recorded as contribution and will reduce dollar for dollar the amount that Cal-Am can request in the advice letter. ⁸ This provision was modified by the parties, as discussed in Section D.1. ⁹ The settlement of 2004 rate base issues is for the purpose of calculating 2005 revenue requirements.