ALJ/RS1/tcg Date of Issuance 10/8/2008

Decision 08-10-018 October 2, 2008

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of SAN JOSE WATER COMPANY (U 168 W) for an Order Approving the Sale of the Main Office under Section 851 and Authorizing the Investment of the Sale Proceeds under Section 790.

Application 07-01-035 (Filed January 22, 2007)

DECISION ADDRESSING SAN JOSE WATER COMPANY'S
APPLICATION FOR AUTHORITY TO SELL MAIN OFFICE

TABLE OF CONTENTS

Title Page

DECISION ADDRESSING SAN JOSE WATER COMPANY'S
APPLICATION FOR AUTHORITY TO SELL MAIN OFFICE 11

1. Summary 22

2. Background 33

3. Applicability of § 851 and the Gain on Sale Decision to the Proposed Transaction 1111

4. The Rate Case Plan (RCP) and the Filing of Applications, Rate Base
Offsets or Requests for Other Proceedings Between Scheduled GRCs 1818

5. Need for Replacement Facilities 2121

6. Reasonableness of the Selling Price for the Main Office 3535

7. Eligibility of the Net Proceeds from the Sale of the Main Office for Reinvestment Pursuant to § 790 3737

8. Discounted Cash Flow (DCF) and Revenue Requirement Analyses of Alternatives 4444

8.1. Computation of the NPV of Revenue Requirements for each
Alternative 4646

8.2. Proceeds from the Eventual Sale of Facilities 4848

8.3. Purchase Price of the Replacement Facility 5151

8.4. Income from Leasing Excess Space in the Replacement Facility 5252

8.5. Net-to-Gross (NTG) Multiplier 5454

8.6. Calculating Depreciation on Plant 5858

8.7. Escalation of Lease Payments 5858

8.8. Deferral of Taxes 6161

8.9. Summary of Revisions to the DCF Analyses and Resulting Revenue Requirements 6262

9. Selection of Alternatives 6464

10. Rate Design for Recovering Increased Costs 6767

11. Other Issues 6868

11.1. Alleged Excessive Lease Payments to Affiliate 6868

11.2. Alleged Unauthorized Property Transfers 7070

11.3. Purchase of 1265 South Bascom Avenue 7373

11.4. Alleged Rule 1.1 violation 7575

12. Comments on Proposed Decision 7777

13. Assignment of Proceeding 7878

Findings of Fact 7878

Conclusions of Law 8282

ORDER 8484

Appendix A

Appendix B

Appendix C

Appendix D

DECISION ADDRESSING SAN JOSE WATER COMPANY'S
APPLICATION FOR AUTHORITY TO SELL MAIN OFFICE

1. Summary

This decision (Decision) grants, in part, San Jose Water Company's (SJWC's) Application (A.) 07-01-035 (Application) requesting an order approving the sale of its main office¹ (Main Office) pursuant to § 851 of the Public Utilities Code² and authorization to reinvest the net proceeds from the sale in infrastructure pursuant to § 790. The Decision's approval of the Application, in part, will ensure that SJWC's facilities are adequate to provide public utility services.

The Decision authorizes SJWC to sell the Main Office because the Main Office is not an adequate or efficient facility, and because the Main Office cannot be remodeled or renovated to make it an adequate facility.

The Decision approves an increase of $1,133,520 in the revenue requirement for 2008 resulting from the replacement of the Main Office, and approves the proposed rate design to recover 50% of this additional revenue requirement through the service charge component and 50% through the quantity rate component of SJWC's tariffed rates. Approval of the additional revenue requirement results in a rate increase of 1.16% in the service charge component, an increase of 0.42% in the quantity rate component of SJWC's tariffed rates, and an overall rate increase of 0.61%.

The Decision finds that, although the Main Office is inadequate, it continues to be necessary and useful property. Therefore, the Decision denies SJWC's request for a determination that the Main Office is no longer necessary or useful, and denies SJWC's request for authorization to reinvest the net proceeds from the sale in infrastructure. Instead, the Decision orders the net proceeds from the sale of the Main Office be allocated to ratepayers and shareholders pursuant to the Percentage Allocation Rule.³

The Decision determines that the ratepayers' share of the net proceeds from the Proposed Transaction is $1,513,209, and that the ratepayers' share of the net proceeds should be distributed to SJWC's customers through a surcredit on customer bills.

Finally, the Decision finds that SJWC did not require prior Commission approval to purchase 1265 South Bascom Avenue, and that SJWC did not mislead the Commission in violation of Rule 1.1 by failing to notify the Commission that SJWC purchased 1265 South Bascom Avenue in May 2007.⁴

¹ The facilities consist of a 15,900 ft² office building and a 5,300 ft² data processing facility annexed to the main office building, for a total of 21,200 ft.² These facilities, the land upon which they are situated and other improvements thereon are referred to as the "main office".

² All statutory references are to the Public Utilities Code unless otherwise indicated.

³ D.06-05-041, OP 1, as modified by D.06-12-043.

⁴ All references to Rules are to Commission's Rules of Practice and Procedure unless otherwise indicated.