Background

Arrowhead is Class C water utility providing service to approximately 560 customers in the unincorporated community of Cedar Glen and vicinity one mile southeast of Lake Arrowhead, San Bernardino County. Its last general rate increase was authorized in 1994 by Resolution W-3826. There have been minor rate adjustments since that time.

Although the dates are uncertain, the roots of this general rate case apparently stretch back to mid-1997 when Water Division dispatched an accountant to conduct an audit of Arrowhead's Safe Drinking Water Bond Act (SDWBA) loan. That assignment may or may not have included as a second purpose laying the foundation for an Arrowhead request under the Water Division's outreach program. In about March 1998 the Division assigned an engineer and an analyst from its Los Angeles office to begin the informal rate increase process. By some accounts, that resulted in an interim Water Division report in June 1998, after which efforts tailed off or became sporadic. Water Division revisited the company in April 1999, and in June resumed with a full financial audit focused on Arrowhead's 1998 income statement and SDWBA loan. During that process, the Division's auditor worked with Arrowhead's owner and staff to assemble a set of workpapers in the Commission standard format for Class D water utility informal general rate increases. Whether the resulting figures were Arrowhead's or the Division's later became an issue in the proceeding, but it is clear that there were at least two direct results of their joint effort. The first was a September 20, 1999 draft advice letter that led to Resolution W-4167 on October 7, 1999, in which the Commission granted Arrowhead a 57.5% interim rate increase for purchased water subject to refund pending the outcome of a general rate case. The second was a September 24, 1999 draft advice letter informal general rate increase request, which Water Division shortly thereafter had converted into this formal application.

Assigned Commissioner Josiah Neeper's January 31, 2000 scoping ruling confirmed the Commission's preliminary designation of this as a ratesetting proceeding expected to go to hearing, defined the issues, and designated assigned Administrative Law Judge (ALJ) McVicar as the principal hearing officer and thus the presiding officer. ALJ McVicar held a prehearing conference in Crestline on January 10, 2000 and two days of evidentiary hearings March 27 and March 28 in Crestline.

On March 16, 2000, the Commission issued its Order Instituting Investigation (I.) 00-03-016 to examine allegations of SDWBA improprieties, noncompliance with Commission and California Department of Health Services requirements, and failure to resolve customer complaints and inquiries. I.00-03-016 and A.99-10-027 were consolidated and evidentiary hearings set for July in the investigatory phase. Today's Interim Opinion deals entirely with the A.99-10-027 general rate case issues; investigatory issues will be addressed in a later decision.

At the conclusion of evidentiary hearings, the ALJ set an April 28 due date for briefs. No briefs were filed. The ALJ learned shortly after that Arrowhead,

RRB, Peters and Pretzinger had instead reached a tentative settlement agreement on all ratesetting issues. On May 19, 2000 the settling parties filed their Motion for Adoption of Settlement and the proposed settlement included as Attachment A to this decision.

Party Kathy Wanser did not join in the settlement. After conferring with the other settling parties, RRB filed a motion on May 25 to shorten the time for comments on the proposed settlement in the belief that doing so would allow the Commission to dispose of the ratemaking issues in advance of the forthcoming investigatory phase hearings. After confirming with Wanser that she did not object to shortening the comment period, the ALJ so ruled. Although she professed to oppose the settlement and any rate increase, Wanser did not subsequently file comments on the settlement as she was permitted to do under the Commission's Rules of Practice and Procedure, Rule 51.4.