ALJ/MFG/hkr Date of Issuance 6/13/2008

Decision 08-06-022 June 12, 2008

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of SAN GABRIEL VALLEY WATER COMPANY (U337W) for Authority to Increase Rates Charged for Water Service in its Los Angeles County Division by $13,366,100 or 28.0% in July 2008, $3,298,100 or 5.4% in July 2009, and $1,439,600 or 2.2% in July 2010; and in its Fontana Water Company division by $678,200 or 1.5% in July 2008; and in both divisions for advice letter treatment of a capital project.

Application 07-07-003
(Filed July 2, 2007)

Nossaman, Guthner, Knox & Elliott, LLP, by Martin A. Mattes, Attorney at Law, for San Gabriel Valley Water Company, applicant.

Best, Best & Krieger, LLP, by Kendall H. MacVey, Attorney at Law, for the City of Fontana; Marvin T. Sawyer, for the Fontana Unified School District; and Selina Shek, Attorney at Law, for the Commission's Division of Ratepayer Advocates, interested parties.

DECISION RESOLVING GENERAL RATE CASE
OF SAN GABRIEL VALLEY WATER COMPANY'S
LOS ANGELES COUNTY DIVISION AND GENERAL DIVISION

TABLE OF CONTENTS

Title Page

DECISION RESOLVING GENERAL RATE CASE
OF SAN GABRIEL VALLEY WATER COMPANY'S
LOS ANGELES COUNTY DIVISION AND GENERAL DIVISION 2 2

1. Summary 2 2

2. Background 2 2

3. Violation of Rule 13.1 3 3

4. Joint Comparison Exhibit 6 6

5. Partial Settlement Agreement 7 7

6. Cost of Capital 8 8

6.1. Capital Structure 9 9

6.1.1. SGV 9 9

6.1.2. DRA 9 9

6.1.3. Discussion 10 10

6.2. Long-Term Debt Costs 15 15

6.3. Common Equity Return 17 17

6.3.1. Financial Models 19 19

6.3.2. Additional Risk Factors 21 21

7. Escalation Rates 24 24

8. Los Angeles Division 25 25

8.1. Operating Revenues 26 26

8.1.1. Impact of Enhanced Conservation Programs 26 26

8.2. Operating Expense 28 28

8.2.1. Purchased Water & Assessments 29 29

8.2.2. Payroll, Pension & Benefits 30 30

8.2.2.1. Payroll Base 31 31

8.2.2.2. Vacant Positions 32 32

8.2.2.3. Step Increases 34 34

8.2.2.4. Current Positions 35 35

8.2.2.5. New Positions 35 35

8.2.2.5.1. Customer Serviceman/Conservation
Specialist 35 35

8.2.2.5.2. Water Treatment Operator III 37 37

8.2.3. Uncollectibles 38 38

8.2.4. Franchise Fees 38 38

8.2.5. Insurance 38 38

8.2.6. Administrative Expense Transferred 40 40

8.2.7. Allocated Common Expenses 41 41

8.2.8. Payroll Taxes 42 42

8.2.9. Income Taxes 43 43

8.3. Rate Base 43 43

8.4. Return on Rate Base 43 43

9. General Division 44 44

9.1. Common Expenses 44 44

9.1.1. Payroll 45 45

9.1.2. Chairman of the Board's Salary 45 45

9.1.3. Current Position 46 46

9.1.4. New Positions 47 47

9.1.4.1. Regulatory Analyst and Conservation Coordinator 47 47

9.1.4.2. Regulatory Compliance Coordinator 48 48

9.2. Rate Base 49 49

9.2.1. El Monte Office Building 49 49

9.2.2. New Fontana Building 52 52

9.3. Four-Factor Allocation Method 55 55

9.4. Recovery of General Department's Common Costs 55 55

10. One-Way Conservation Balancing Account 55 55

11. Irrigation Service 57 57

12. Water Quality Litigation Memorandum Account 58 58

13. Water Action Plan 58 58

14. Summary of Earnings 59 59

15. Rate Design 60 60

16. Comments on the Proposed Decision of the ALJ 60 60

17. Categorization and Need for Hearing 60 60

18. Assignment of Proceeding 60 60

Findings of Fact 61 61

Conclusions of Law 66 66

ORDER 70 70

APPENDIX A

APPENDIX B

DECISION RESOLVING GENERAL RATE CASE
OF SAN GABRIEL VALLEY WATER COMPANY'S
LOS ANGELES COUNTY DIVISION AND GENERAL DIVISION

1. Summary

San Gabriel Valley Water Company (SGV) is authorized to increase rates in its Los Angeles County Division (LA Division) by amounts designed to increase revenue by $3,885,500 or 8.1% in the fiscal year beginning July 1, 2008. SGV is also authorized to establish a $0.006 per hundred cubic feet (Ccf) water surcredit rate in its Fontana Water Company Division (Fontana Division) beginning July 1, 2008. We authorize rates of return on rate base of 9.47% in the fiscal years beginning July 1, 2008, July 1, 2009, and July 1, 2010. The return on common equity (ROE) authorized by this decision is 10.50%.

As a result of the revenue increase granted by this decision, the monthly bill for the average LA Division residential customers using 23 Ccf of water with a 5/8" by 3/4" meter would increase by $4.37 or 8.4% to $56.05 from $51.68 for the fiscal year beginning July 1, 2008.