7. Discussion

Fontana Water Company and DRA submitted their joint settlement agreement for our consideration pursuant to Rule 12.1 of the Commission's Rules of Practice and Procedure. They aver that the settlement is reasonable in light of the whole record, consistent with law, and in the public interest.

Rule 12.1(d) holds that the Commission will not approve settlements, whether contested or uncontested, unless they are reasonable in light of the whole record, consistent with law, and in the public interest. In that regard, we precondition approval of the settlement agreement upon satisfaction that:

· The proposed settlement agreement reasonably resolves the active parties' issues.

· The sponsoring parties are fairly reflective of the affected interests.

· No term of the settlement contravenes statutory provisions or prior Commission decisions.

· The settlement conveys to the Commission sufficient information to permit it to discharge its future regulatory obligation with respect to the parties and their interests.

7.1. Resolution of Active Parties' Issues

The Commission must be satisfied that any settlement agreement it approves reasonably resolves the active parties' issues. In this proceeding, Fontana Water Company, DRA, the City, and FUSD are the only active parties. The settlement agreement was signed by Fontana Water Company and DRA. Although the City and FUSD did not sign the settlement agreement, they did not oppose it.² With no comments filed in opposition to the settlement agreement, the first condition for approval is satisfied.

7.2. Sponsoring Parties Reflective of Affected Interests

Fontana Water Company had experienced counsel representing its own interests and those of its shareholders. Likewise, DRA had experienced counsel representing it and engaged in extensive settlement negotiations after the initial round of prepared exhibits were mailed. DRA's charge is to represent water utility ratepayers, and there is every indication that it has thoroughly and earnestly done so here. The sponsoring parties for the settlement agreement are indeed fairly reflective of the affected interests.

7.3. No Term Contravenes Prior Commission Decisions

The settling parties represent that no term of the settlement contravenes any statutory provision or any Commission decision. After reviewing the settlement, we concur.

7.4. Sufficient Information

In readying their team for hearings in this proceeding, Fontana Water Company, DRA, and the City served prepared testimony on the issues identified in the assigned Commissioner's January 22, 2008 Scoping Memo and Ruling. All of the prepared testimony was admitted into evidence for the purpose of identifying each party's initial position prior to the settlement agreement. The settlement agreement indicates the negotiated outcome for each significant contested item.

Although the settlement agreement provides for a one-way balancing account, it also provides for a two-way recovery of any (over or under-collected) balance in that account. On July 23, 2008, the settlement agreement signatories clarified that their proposed one-way balancing account is intended to match conservation program expenditures with a spending limit and match collected water conservation surcharge with a revenue target equal to their agreed upon spending limit. In other words, the proposed one-way balancing account limits cost recovery to the lower of actual expenditures or the amount authorized.

The parties have fully defined the outcomes they have agreed to and the settlement conveys sufficient information to permit the Commission to discharge its future regulatory obligations with respect to the parties and their interests.

7.5. Conclusion

The conservation issues identified in this proceeding have been equitably resolved with substantial support in the record by way of prepared testimony and the settlement agreement. The settlement agreement addresses and takes action on the Commission's and the California Department of Water Resources' increased emphasis on water conservation while providing Fontana Water Company flexibility to expand its conservation program.

The settlement agreement ensures that Fontana Water Company spends its authorized annual conservation budget on the conservation measures listed in the settlement agreement and ensures that any unspent funds will be provided to ratepayers. Fontana Water Company will also have to demonstrate that all expenditures for incentive payments and equipment booked to the one-way balancing account went directly to its ratepayers for conservation, an issue of DRA, the City, and FUSD.

The settlement agreement meets the Commission's requirement for adoption of a settlement agreement. When reviewed as a total product, each component is reasonable in light of the record, consistent with law, and in the public interest. The settlement agreement should be approved.

² The City and FUSD did not exercise their right to file comments on the settlement agreement.