7. Assignment of Proceeding

John A. Bohn is the assigned Commissioner and Janice Grau is the assigned Administrative Law Judge in this proceeding.

Findings of Fact

1. The joint motions to adopt settlement agreements and settlement agreements were filed as follows:

· GSWC/DRA on conservation rate design trial program on October 19, 2007 and amendment to settlement on March 21, 2008;

· San Jose/DRA on conservation rate design and pricing adjustment mechanism trial program on November 14, 2007;

· CalWater/DRA on conservation memorandum account on December 21, 2007;

· GSWC/Joint Consumers on data collection and reporting, customer outreach and education initiatives on March 21, 2008; and

· San Jose/Joint Consumers on customer education and outreach and data collection and reporting initiatives on June 12, 2008.

2. The motions to adopt settlement agreements, comments, and testimony provide a comprehensive record for consideration of the settlements.

3. GSWC's proposed residential conservation rate design for Regions II and III consists of two-tier increasing block rates based on seasonal averages that are determined to be a proxy for indoor water consumption and will ensure that consumers with low and average use remain within Tier 1. There is a 15% difference between Tier 1 and Tier 2 rates. GSWC's proposed nonresidential rate design reduces service charges and includes a uniform quantity charge that covers a greater percentage of fixed costs than the current rate design. Rate increases are limited to 10%. The amendment incorporates the revenue requirement adopted in D.07-11-037.

4. The interim proposed rate design for Region I customers reduces service charges and increases the quantity charge, because the Region I GRC was pending when the settlement was filed. Conservation rate designs will be proposed for Region I on or before twenty days after the issuance of this decision.

5. D.00-06-075 precluded GSWC from seeking a rate increase in the Wrightwood and Desert service areas until other Region III service areas reach a similar level of rates.

6. The WAP supported the adoption of decoupling mechanisms due to existing financial disincentives to conserve water.

7. GSWC proposes separate WRAMs for each ratemaking area, which will track the difference between actual and adopted revenue and amortize over- or under-collections if they exceed 2.5% of GSWC's prior year revenue requirement.

8. GSWC's Region III water programs would save about 753 acre feet of normal annual consumption for a revenue loss of $567,000.

9. San Jose's proposed residential conservation rate design consists of two-tiered increasing block rates by setting the upper level of the first consumption block at the mid-point between the average monthly consumption over an entire year and the average monthly consumption during the winter months. The Tier 1 rate is approximately a 3.23% discount from the current rate, and the Tier II rate is approximately 10% above the Tier 1 rate. There are two proposed schedules, one for customers with smaller meter sizes and the other for customers with larger meter sizes.

10. San Jose's proposed conservation rate design is consistent with the take-or-pay provisions in San Jose's contract with the Santa Clara Valley Water District. (SCVWD). San Jose must pay for at least 90% of the water scheduled over the three-year period of the contract under the take-or-pay provision and must contract for a minimum of 95% of the highest amount of water contracted for in any one year of those three years.

11. San Jose's nonresidential rate design will not change. The existing nonresidential rate design recovers approximately 80.93% of nonresidential revenues through volumetric rates.

12. San Jose's proposed pricing adjustment mechanism tracks the difference between revenue San Jose receives for actual meter sales and the revenue San Jose would have received through the uniform, single quantity rates if they had been in effect. If the over- or under-collection exceeds 2% of San Jose's adopted revenue requirement for the present year for amounts recovered through the quantity rates of residential customers, San Jose will file an advice letter to amortize the balance in the account.

13. The Commission has found that balancing accounts relieve a company of additional variability in its revenues and/or expenses and that future proceedings would weigh that impact in determining risk and adopting a return on equity.

14. WRAMs that decouple sales from revenues eliminate almost all variations in earnings due to sales fluctuations. MCBAs ensure predictable cost recovery.

15. The effect of WRAMs and MCBAs adopted in Phase 1 of this proceeding will not be reflected in market data of California utilities contained in financial models examined in cost of capital reviews.

16. Implementation of the WRAMs will greatly reduce utilities' earnings volatility compared to the situation that would prevail in their absence. Whether they reduce earnings volatility below that which would remain in the absence of other conservation-inducing policies is not clear.

17. DRA recommends a 50 to 100 basis point reduction in authorized ROE since it reflects a 10 to 20% reduction in earnings volatility.

18. The Commission reviews information that reflects' investors' perceptions of risk and uses its own judgment in assessing risks.

19. The Commission generally has found that decoupling mechanisms reduce risk, all other things being equal.

20. CalWater and GSWC's witness found no significant change in share price at one, seven or 90 days after the approval of decoupling mechanisms for gas utilities.

21. CWA's witness found credit rating agencies did not heavily weight electric revenue adjustment mechanisms in their rating deliberations.

1. The proposed settlements generally are reasonable in light of the whole record, consistent with the law and in the public interest.

2. The conservation rate designs will advance the WAP's conservation objectives and will be reviewed to determine whether they meet targeted reductions in consumption. The GSWC WRAMs and MCBAs implement the WAP's objective of decoupling sales and revenues to encourage successful conservation programs. The San Jose pricing adjustment mechanism meets San Jose's unique circumstances.

3. Implementation of WRAMS and MCBAs may result in a diminution of shareholder risk relative to ratepayers, other things being equal.

4. It is reasonable to delay quantification of an ROE adjustment until it can be reviewed comprehensively with other risk changes in a cost of capital proceeding.

5. In order to promptly implement conservation rates, WRAM/pricing adjustment mechanism, MCBAs, customer education and outreach, data collection and reporting, and conservation memorandum accounts and changes to those accounts, this decision should be effective immediately.

ORDER

IT IS ORDERED that:

1. The following settlement agreements are approved and adopted:

· Golden State Water Company (GSWC)/Division of Ratepayer Advocates (DRA) on conservation rate design trial program and amendment to settlement except the interim rate design for Region I;

· San Jose Water Company (San Jose)/DRA on conservation rate design and pricing adjustment mechanism trial program;

· California Water Service Company (CalWater)/DRA on conservation memorandum account;

· San Jose, TURN, NCLC, DisabRA, and LIF on customer education and outreach and data collection and reporting initiatives on June 12, 2008; and

· San Jose, TURN, NCLC, DisabRA, and LIF on customer education and outreach and data collection and reporting initiatives on June 12, 2008.

2. GSWC and San Jose shall provide the following information in their next general rate cases: monthly or bimonthly (depending on the billing cycle) per customer or service connection changes in consumption by district, separated by meter size and customer class, following the implementation of the conservation rate design trial program; surcredits or surcharges by district and customer class implemented in amortizing water revenue adjustment mechanisms (WRAM) and modified cost balancing accounts (MCBA) for GSWC and pricing adjustment mechanism for San Jose; increase or decrease in disconnecting low-income program participants for nonpayment by district after adoption of conservation rate designs; increase or decrease in low-income program participation by district after adoption of conservation rate designs; increase or decrease in residential disconnections for nonpayment by district after adoption of conservation rate designs; identification of any weather or supply interruption that might contribute to consumption changes in districts; and any other district-specific factor that might contribute to consumption changes.

3. Class A water utilities whose residential conservation rate design trial programs have been implemented for at least one year shall propose increasing block rates for nonresidential customer classes in the next general rate case.

This order is effective today.

Dated August 21, 2008, at San Francisco, California.

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