Modified Terms per Settlement Agreement

The settlement agreement modifies the merger agreement. In summary, ORA agrees that SCWC and Peerless should be authorized to merge pursuant to the terms of their settlement agreement, and should record the total purchase price pursuant to the Uniform System of Accounts prescribed by the Commission. ORA and applicants agree that Peerless' rates should be frozen at their current level through 2001; that SCWC will make specified improvements to Peerless' system over the next five years; that SCWC should be allowed to file advice letters to request increases in Peerless' rates to reflect the cost of such improvements when completed; and, that Peerless customers will join SCWC's Metropolitan District in 2005, provided the specified improvements have been completed.

ORA and SCWC made concessions in order to reach a settlement. SCWC agreed to exclude goodwill and contributed plant from recorded rate base. Therefore, SCWC's shareholders will not earn a return on these amounts of their investment in the future. Additionally, after the PPH, SCWC agreed to defer rate increases. Originally, SCWC had requested to immediately charge former Peerless customers the Metropolitan District ME-1 tariff rates. The Settlement instead allows for the merger of the Peerless customers onto the Metropolitan District tariff in 2005, provided the improvements herein identified are completed.

SCWC has also agreed that it will not request to increase Peerless customers' rates in 2001. SCWC will, however, begin to make capital improvements to the Peerless system during 2001, as soon as the merger has been approved by the Commission. These costs may be placed in rate base as projects are completed, which will increase rates. As shown in the Settlement Agreement, SCWC is committed to an initial five-year capital improvement plan. These projects will improve water quality by removing iron and manganese that is currently present in the water served to Peerless customers at a level that exceeds the Department of Health Services secondary drinking water standard. The improvements also include rehabilitation and construction of several wells to decrease the volume of water that has to be purchased from other agencies at a higher cost than pumping groundwater.

Thus, under the terms of the settlement agreement reached between SCWC, Peerless and ORA, Peerless customers would see no rate increase in 2001. However, in each of 2002, 2003 and 2004, the Peerless customers would experience a 10% rate increase, contingent on the completion and placing into service of plant in an amount equivalent to the cost and consistent with the schedule of needed expenditures identified above. In 2005, when merged with the Metropolitan District, former Peerless rates would increase approximately 16%, or to the level of this tariff.