3. Amended Settlement Agreement

The Settling Parties agree on all the disputed issues in the Application including:

3.1. Transfer of Preconstruction Costs to the SRSBA

1. Settling parties agree that the Commission should authorize Cal Am to transfer $3,741,714 of 2007 preconstruction costs incurred for the Water Project to the SRSBA.

2. Settling Parties agree that Cal Am's total request for recovery of $3,888,831 should be reduced by $137,632, plus associated interest of $9,485, or a total reduction of $147,117.

3. Settling Parties agree that $309,258.22 represents Cal Am's full recovery of charges from ASR Systems, LLC (ASR Sysrems) for work that ASR Systems performed through December 31, 2007, and that Cal Am will not seek further recovery of any additional ASR System charges for services through December 31, 2007, for the Water Project.

4. Settling Parties agree that the Commission should authorize Cal Am to remove $185,893 in labor, labor overhead and related costs incurred through December 31, 2006 for the Water Project that Cal Am identified as possibly duplicative of authorized GRC expenses.

5. Settling parties agree that Cal Am has provided certain preconstruction cost documents to DRA and MPWMD, and that DRA and MPWMD have found the already-incurred costs which Cal Am has sought for recovery are reasonable.

3.2. Annual Report Procedure
an Reporting Requirements

1. Cal Am will file a separate annual application for pre-construction costs incurred for the Water Project to be recovered through Surcharge 1 that reflects costs incurred in the prior year from January 1 through December 31 (the Reporting Period).

2. DRA will submit its report on the reasonableness of Cal Am's costs on or before December 15 of each year. Intervenors may submit testimony 15 days after DRA submits its report. Cal Am may submit rebuttal testimony no later than 45 days after DRA submits its report.

3. Cal Am must justify all costs for services rendered outside of the Reporting Period. Absent such justification costs for services rendered outside of the Reporting Period will not be recoverable by Cal Am.

4. Cal Am will file an application for recovery of 2008 and beyond pre-construction costs eligible for Surcharge 1 recovery.

5. Cal Am shall provide certain contract and other documents with its applications.

6. Cal Am shall provide a budget and schedule with each task order contract.

7. Cal Am shall provide in its Class A Annual Report submitted by March 31 of each year an accounting for its Surcharge 1 including amounts collected from customers and total pre-construction costs charged for each reporting period.