Findings of Fact

1. This decision resolves the revenue requirement phase of Cal Am's GRC application for its Larkfield and Sacramento districts.

2. On July 6, 2007, Cal Am and DRA filed a partial settlement of the revenue requirement issues.

3. The debt to equity ratio contained in the settlement of 58.16% to 41.84% for Test Year 2008, 58.32% to 41.68% for Escalation Year 2009 and 58.83% to 41.17% for Escalation Year 2010 is reasonable.

4. The cost of debt contained in the settlement for 2008, 2009 and 2010, of 6.20%, 6.25% and 6.29%, respectively, is reasonable.

5. We find the Operation and Maintenance section of the settlement reasonable.

6. The Administration and General Expenses section of the settlement is reasonable.

7. The Utility Plant in Service section of the settlement is reasonable.

8. We find the Depreciation and Expense Reserves section of the settlement reasonable.

9. The Special Requests section of the settlement is reasonable.

10. The settlement viewed as an integrated agreement is reasonable in light of the whole record, consist with the law and in the public interest.

11. A Return on Equity of 10.15% is reasonable based on the record and is commensurate with return on investments in comparable companies and sufficient to (a) assure confidence in the financial integrity of Cal Am, (b) maintain its credit and (c) attract necessary capital investment.

12. A leverage adjustment to the ROE for increased financial risk is not warranted.

13. Although development of a long-term infrastructure replacement strategy is essential to ensuring reliable, high quality service and water, Cal Am has not justified its request for an Infrastructure System Replacement Surcharge (ISRS) absent a plan identifying the capital projects it will fund.

14. Cal Am's proposed ISRS reduces the ratepayer safeguards of our existing regulatory structure.

15. Our existing regulatory structure for approving capital projects is adequate for the Larkfield and Sacramento districts.

16. Cal Am's consolidation proposal for the Larkfield and Sacramento districts is not justified.

17. Cal Am's employee pension and benefit expenses relating to health care premiums are reasonably based on historical expenses and appropriately use a labor inflation factor.

18. Cal Am's employee pension and benefits expense related to employee awards is appropriately charged to ratepayers.

19. Cal Am's regulatory expense is reasonable.

20. This proceeding remains open for the Phase II Rate Design.