COM/JB2/hl2 Date of Issuance 5/22/2008

Decision 08-05-018 May 15, 2008

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of California-American Water Company (U 210 W), to Decrease Revenues for Water Service in its Coronado District By ($73,100) or (0.46%) in 2008 and Increase Revenues by $266,200 or 1.67% in 2009 and $260,900 or 1.61% in 2010.	Application 07-01-036 (Filed January 22, 2007)
And Related Matters.	Application 07-01-037 Application 07-01-038 Application 07-01-039

(See Attachment E for a List of Appearances)

DECISION ADOPTING THE REVENUE REQUIREMENT FOR
CALIFORNIA-AMERICAN WATER COMPANY'S LARKFIELD AND SACRAMENTO DISTRICTS

TABLE OF CONTENTS

Title Page

DECISION ADOPTING THE REVENUE REQUIREMENT FOR CALIFORNIA-AMERICAN WATER COMPANY'S LARKFIELD AND SACRAMENTO DISTRICTS 22

1. Summary 22

2. Background 33

3. Settlement Agreement Between Cal Am and DRA 66

3.1. Mark West Comments on the Settlement Agreement 77

3.2 Terms of the Settlement 99

3.2.1. Cost of Capital 1010

3.2.2. Customer Sales and Revenue 1010

3.2.3. Operation and Maintenance Expense 1111

3.2.3.1 Sacramento District Pumping Expense - 
Miscellaneous 1111

3.2.3.2 Sacramento District Water Treatment - Miscellaneous 1111

3.2.3.3. Sacramento District Source of Supply - Wells 1111

3.2.4. Administrative and General Expenses 1111

3.2.5. Utility Plant in Service 1212

3.2.6. Depreciation Expense and Reserves 1515

3.2.7. Special Requests 1515

3.2.7.1. Low-Income Program 1515

3.2.7.2. Conservation Balancing Account and Surcharge and Program Funding 1515

3.2.7.3. American Jobs Creation Tax Act 1616

3.2.7.4. Balancing and Memorandum Account Balances 1616

3.3 Cal Am's and DRA's Motion to Adopt the Settlement 1616

4. Issues Not included in the Settlement 1717

4.1. Cost of Capital 1717

4.1.1. Return on Equity 1717

4.2. Infrastructure Replacement System Surcharge 2424

4.3. Larkfield and Sacramento District Consolidation 3232

4.3.1. Administrative and General Expense 4040

4.3.2. Employee Pensions and Benefits 4040

4.3.3. Regulatory Expense 4242

5. Comments on Proposed Decision 4343

6. Assignment of Proceeding 4343

TABLE OF CONTENTS
(cont'd)

Title Page

Findings of Fact 4343

Conclusions of Law 4545

ORDER 4545

ATTACHMENT A: Settlement Agreement - Larkfield District

Settlement Agreement - Sacramento District

ATTACHMENT B: Comparison Tables Agreement - Larkfield District

Comparison Tables Agreement - Sacramento District

ATTACHMENT C: Adopted Quantities - Larkfield District

Adopted Quantities - Sacramento District

ATTACHMENT D: Tariff Pages - Larkfield District

Tariff Pages - Sacramento District

ATTACHMENT E: Service List

DECISION ADOPTING THE REVENUE REQUIREMENT FOR
CALIFORNIA-AMERICAN WATER COMPANY'S LARKFIELD AND SACRAMENTO DISTRICTS

1. Summary

This decision resolves the revenue requirement phase of the general rate case (GRC) application of California-American Water Company (Cal Am) for its Larkfield (Application (A.) 07-01-037) and Sacramento (A.07-01-038) districts. A separate decision was issued for the Coronado and Village districts. We adopt a 2008 revenue increase for Larkfield of $753,200 or 36.66%, which is effective from January 1, 2008. We adopt a 2008 revenue increase for Sacramento of $6,804,300 or 25.71%, which is effective from January 1, 2008. The rate design portion of this case will be decided in Phase II.

Today's decision adopts the settlement between Cal Am and the Division of Ratepayer Advocates (DRA). We find the settlement is reasonable in light of the whole record, consistent with law and in the public interest.

We adopt a return on equity (ROE) of 10.15% for Cal Am's Larkfield and Sacramento districts for the three-year GRC period, or until the next GRC or Cost of Capital decision for a particular district is issued.¹

We do not grant Cal Am's request for an Infrastructure System Replacement Surcharge (ISRS). Cal Am must first develop a comprehensive asset management plan, as described in the Water Action Plan, identifying the specific areas requiring capital investment to replace or improve aging infrastructure before we will implement a surcharge.

We do not implement the pilot Distribution System Improvement Charge (DSIC)² program developed in D.07-08-030 for the Cal Am Los Angeles District GRC. If successful, we envision the Los Angeles pilot program serving as a model for other Cal Am districts and Class A water utilities. We encourage Cal Am to take the necessary steps outlined here to implement an asset management plan and apply for a DSIC in its next GRC.

We do not adopt the Cal Am consolidation proposal. While the Water Action Plan opened the door for a renewed consideration of subsidies, it did so along with a multitude of other policy objectives to be balanced. We have not been presented with a record in this proceeding that would weigh the need to mitigate rates for a low density community heavier than the need to charge cost-based rates.

Finally, this decision approves Cal Am's requested regulatory expenses and employee pensions and benefits expenses.

¹ Cal Am is schedule to file the next GRC for Larkfield and Sacramento in 2008, according to the new Rate Case Plan adopted in Decision (D.) 07-05-062.

² The ISRS and DSIC are different names for similar infrastructure improvement funding mechanisms.