2. Background

Suburban is a Class A water utility¹ currently providing water service to approximately 300,000 customers in two service areas. Suburban's San Jose Hills service area is in southeast Los Angeles County and includes the cities of Covina and La Puente; and, Suburban's Whittier/La Mirada service area includes the cities of Whittier and La Mirada in Los Angeles County, and Buena Park in northeast Orange County. For ratemaking purposes, these two services areas were combined into a single district in 1996.

Suburban is a subsidiary of Southwest. Southwest is headquartered in Los Angeles, with its operations structured into two groups: the Services Group, and the Utility Group. The Services Group consists of non-regulated contract operations that provide water and wastewater management services to cities, utility districts and other government entities in 10 states. The Utility Group is made up of regulated public utilities. These include over 100 water and wastewater systems representing more than 160,000 residential and commercial connections in six states. Suburban is the only California utility under Southwest control. Southwest is a public company (publicly traded), while Suburban is a private company (not publicly traded).

Suburban filed the subject application, its triennial general rate case (GRC), pursuant to the Rate Case Plan (RCP) guidelines established in Decision (D.) 04-06-018 (RCP for Class A Water Utilities) and D.07-05-062 (Revised RCP for Class A Water Utilities). In its previous general rate case, Application (A.) 05-08-034, Suburban requested rates on a fiscal year basis (FY 2006-07 - FY 2008-09). Here, its request is based on a calendar year basis (2009-2011). Suburban generally complied with the RCP requirements in its application, and also addressed the general issues identified in the Commission's Water Action Plan² Checklist.

In addition to general rate increases, Suburban requested authorization to file a Tier 3 Advice Letter, at a later date, for approval of its "Project Cornerstone," a future project to update its information systems for on-line billing, and to unify its system with that of Southwest. Suburban also requested authority to continue its Residential Houseline Program (RHP), an optional maintenance program for service and repairs on the customer property-side of Suburban's water meter.

The Commission's Division of Ratepayer Advocates (DRA) protested the application. A prehearing conference (PHC) was held to discuss the issues in dispute and to develop a procedural schedule. At the PHC, Suburban and DRA, the only parties participating in this proceeding, agreed to engage in a settlement conference in an attempt to resolve the disputed issues before any evidentiary hearing (EH) on these matters was held. The Assigned Commissioner's Ruling and Scoping Memo (Scoping Memo), issued on April 22, 2008, also confirmed that settlement discussions would be held prior to any hearings.

Suburban and DRA were able to resolve most of the disputed issues at the settlement conference, and subsequently filed a joint motion requesting that the Commission adopt the settlement agreement. As a result of the settlement, Suburban reduced the level of its proposed rate increases by approximately 19%. Today, we adopt the settlement agreement (included here in Attachment B).

Generally, most of the settled issues involve Suburban, while most of the issues not settled involve the Utility Group and Southwest. Though a settlement was reached, the remaining disputed issues still resulted in differences between the rate increases requested by Suburban (11.01% for 2009), and the rate adjustments recommended by DRA (-0.14% for 2009).

The unresolved issues were the subject of an EH. The table below shows the initial rate increases sought by Suburban in its application (pre-settlement); the post-settlement rate levels recommended by DRA; and, Suburban's post-settlement adjusted rate increases.

	Suburban Initial Request			Post-Settlement
				DRA		Suburban
Year	%	Amount		%	Amount	%	Amount
2009	13.57%	$6,820,539		(0.14)%	$ (72,063)	11.01%	$5,535,650
2010	2.97%	$1,698,004		3.27%	$1,643,317	2.69%	$1,506,221
2011	2.12%	$1,250,644		3.12%	$1,638,615	2.19%	$1,262,780

After considering all of the issues presented at the EH, we find that the full amount of Suburban post-settlement rate increase request (11.01% for 2009) should be authorized. DRA fully and actively participated in this proceeding, and its participation assisted in the development of a fuller and more complete record. We find, however, that the evidence presented by DRA generally was not persuasive to the level necessary to justify authorizing a rate less than Suburban's (adjusted) request.

These issues are discussed in further detail below.

¹ Class A water utilities are those companies with more than 10,000 service connections.

² California Public Utilities Commission Water Action Plan, adopted December 15, 2005.