5. Assignment of Proceeding

John A. Bohn is the assigned Commissioner and Christine M. Walwyn is the assigned ALJ in this proceeding.

1. This decision resolves all issues in Phase 2 of Cal-Am's Los Angeles district GRC application.

2. On February 5, 2008, Cal-Am, DRA, and the City of Duarte filed a settlement agreement and on March 25, 2008, the same parties filed an amended settlement agreement. No party filed comments on either settlement.

3. The March 25, 2008 settlement, with accompanying worksheets, is attached as Appendix A of this decision.

4. The settlement proposes a Pilot Program for this GRC period that consists of a conservation rate design for residential and non-residential customers in each of the three Los Angeles service areas and related ratemaking mechanisms, the WRAM and the MCBA.

5. The proposed conservation rate design has been carefully examined and refined through the evidentiary hearing process.

6. Important conservation features included in the proposed rate design are (1) shifting 25% of the fixed cost recovery from the stand-by charge to the volumetric rate; (2) introducing increasing tiered rates for residential customers; and (3) adopting a seasonal adder to the volumetric rates for all customers that are billed under commodity rates. These features are consistent with the goals of our Water Action Plan and the conservation principles being developed in our Conservation OII, I.07-01-022.

7. The rate design gives significant price signals to customers to reduce their usage throughout the year, and particularly in the peak summer months.

8. The parties should further discuss and review methods for moving to monthly billing so that customers receive clearer conservation price signals. During the Pilot Program, Cal-Am should collect and analyze the data necessary for a comprehensive review of this issue and it should present a proposal for moving to monthly billing in its next GRC filing.

9. The conservation rate design proposal for non-residential customers is more limited than the proposal for residential customers. Cal-Am should meet and confer with all interested parties in the next 90 days to determine the types of data collection necessary during the Pilot Program period in order for the Commission to consider further conservation rate design proposals for non-residential customers in the next GRC proceeding.

10. It would be useful for Cal-Am to track and prepare a report on the usage of the top 100 residential customers in each service area during the Pilot Program. This report should be in the same format as the report made for the Monterey district, as shown in Exhibit 63.

11. Cal-Am should make every effort to implement the new rate design during the summer peak period. It should begin the process of customer notification and billing system modifications when the proposed decision is issued.

12. The proposed WRAM and MCBA mechanisms will operate to ensure recovery of the adopted fixed costs recovered in volumetric rates and the actual variable costs for purchased power, purchased water, and pump taxes.

13. Cal-Am stipulates that it will exercise due diligence in ensuring the least-cost water mix of its water sources and will make this showing in its next GRC filing.

14. In D.07-08-030, the Commission expressed a policy preference for a revenue adjustment mechanism that is focused solely on cost under- and over-recovery caused by conservation policies, rather than the broader WRAM mechanism proposed here. We expect that the usage information collected and evaluated during the Pilot Program will allow a conservation focused mechanism to be given greater consideration in the next GRC filing.

15. Cal-Am should discuss the feasibility, as well as the costs and benefits, of conservation focused revenue adjustment mechanisms in its next GRC filing.

16. The conservation rate design being proposed is expected to have a measurable but not substantial impact on sales during the Pilot Program.

17. The settlement provides for adjustments to the Pilot Program if a disparate impact on ratepayers or shareholders occurs. The parties should meet to discuss adjustments and then either jointly or individually file a petition to modify this decision.

18. An example of a disparate impact would be a substantial economic downturn in one or more of the Los Angeles service areas that causes a significant decrease in revenues. This type of a disparate impact should be quickly noticed by Cal-Am based on its monitoring.

19. The initial proposed decision in Phase 1 recommended a 50 basis point downward adjustment to Cal-Am's Los Angeles district return on equity if a WRAM was adopted in Phase 2. The Commission removed consideration of both the WRAM and a related return on equity adjustment from this proceeding to a generic proceeding, then subsequently allowed consideration of a WRAM here.

20. The settlement provides that if the Commission adopts in Phase 1B of I.07-01-022 a generic basis point adjustment to return on equity for water utilities that have WRAM/MCBA mechanisms that are similar to those approved for California Water Service Company and Park Water Company in D.08-02-036, then the same generic return on equity adjustment should be applied to the WRAM/MCBA adopted here.

21. If the Commission issues a decision regarding a return on equity adjustment in I.07-01-022 that is not consistent with the generic adjustment described in the settlement, the parties should meet and confer within 30 days and then, jointly or separately, file a petition to modify this decision within 15 days after the meeting. The WRAM/MCBA balancing accounts adopted here will be subject to true-up to the date of a final decision on a return on equity adjustment.

22. Cal-Am agrees to provide, upon request, drafts of its CPS and CBA reports to any city with residents who are customers of Cal-Am by July 15, 2008, and to provide those cities a 30-day period for review and submission of written comments before finalizing the reports.

23. In consultation with DRA and other interested parties, Cal-Am agrees to develop a comprehensive monitoring and data collection system for use in analyzing customer response to the proposed conservation rates and conservation programs. Cal-Am should schedule a meeting every four to six months with interested parties to discuss the customer response data it is tracking and whether there should be any changes in conservation outreach programs in response to the results.

24. This proceeding should be closed.

1. The Commission regulates water service provided by Cal-Am pursuant to Article XII of the California Constitution, the Public Utilities Code, and the rules and regulations of the Commission.

2. We review the proposed settlement under the requirements set forth in Rule 12.1(d) of the Commission's "Rules of Practice and Procedure."

3. We find the rate design proposed to be reasonable and an appropriate initial conservation rate design for the Los Angeles district.

4. Given the expected modest balancing account impacts, the safeguard provisions of the settlement, and the limited time period of the Pilot Program, we find it reasonable to adopt the proposed WRAM and MCBA mechanisms.

5. Applying a generic basis point adjustment to return on equity developed and adopted in I.07-01-022 to Cal-Am's WRAM/MCBA mechanisms here is reasonable, provided that if the Commission issues a decision in I.07-01-022 that is not consistent with the generic adjustment, the parties meet and confer, and then file jointly or separately a petition to modify this decision.

6. The monitoring and data collection effort proposed in the settlement, together with the refinements discussed in this decision, are reasonable for the Pilot Program and should be adopted.

7. The commitment made by Cal-Am to provide cities drafts of its CPS and CBA reports, together with an opportunity for cities to provide written comments prior to Cal-Am finalizing the reports is reasonable and should be adopted.

8. We find the proposed settlement, with the refinements discussed above, to be reasonable in light of the whole record, consistent with the law, and in the public interest. Adoption of this settlement does not constitute approval of, or precedent regarding, any principle or issue in this proceeding, or in any future proceeding.

9. The March 25, 2008 settlement should be adopted.

10. Cal-Am should be directed to file a Tier 1 advice letter, in accordance with GO 96-B , and make effective on not less than five days notice, revised tariff schedules reflecting the adopted conservation rate design and rates and the adopted WRAM and MCBA mechanisms, as well as the schedule of recovery for the balances under these mechanisms.

ORDER

IT IS ORDERED that:

1. The March 25, 2008 settlement attached at Appendix A is adopted.

2. California-American Water Company (Cal-Am) is directed to file a Tier 1 advice letter, in accordance with General Order (GO) 96-B , and make effective on not less than five days notice, revised tariff schedules reflecting the adopted conservation rate design and rates and the adopted Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) mechanisms, as well as the schedule of recovery for the balances under these mechanisms.

3. During the Pilot Program, Cal-Am shall collect and analyze the data necessary for Commission consideration of a proposal to move to monthly billing. Cal-Am shall present a proposal for this in its next Los Angeles district general rate case (GRC) filing.

4. Cal-Am shall meet and confer with all interested parties in the next 90 days to determine the types of data collection necessary in order for the Commission to consider further conservation rate design proposals for non-residential customers in the next GRC proceeding.

5. Cal-Am shall track and prepare a report on the usage of the top 100 residential customers in each service area during the Pilot Program. This report shall be in the same format as the report made for the Monterey district, as shown in Exhibit 63.

6. Cal-Am shall make every effort to implement the conservation rate design adopted here as soon as possible.

7. Cal-Am shall include in its next GRC filing a discussion of the feasibility, as well as the costs and benefits, of revenue adjustment mechanisms that are focused solely on conservation impacts.

8. If the Commission issues a decision regarding a return on equity adjustment in I.07-01-022 that is not consistent with the generic adjustment described in the settlement, Cal-Am shall meet and confer with all interested parties within 30 days and then, jointly or separately, file a petition to modify this decision within 15 days after the meeting.

9. The WRAM/MCBA balancing accounts adopted here shall be subject to true-up to the date of a final decision on a return on equity adjustment.

10. Cal-Am shall provide, upon request, drafts of its Comprehensive Planning Study and Condition-Based Assessment of Buried Infrastructure reports to any city with residents who are customers of Cal-Am as of July 15, 2008, and shall provide those cities a 30 day period for review and submission of written comments before Cal-Am finalizes the reports.

11. In consultation with DRA and other interested parties, Cal-Am shall develop a comprehensive monitoring and data collection system for use in analyzing customer response to the proposed conservation rates and conservation programs. Cal-Am shall schedule a meeting every four to six months to discuss with interested parties the results of the customer response data it is tracking and whether there should be any changes in conservation outreach programs in response to the results.

12. Application 06-01-005 is closed.

This order is effective today.

Dated June 12, 2008, at San Francisco, California.

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