15. Comments on Proposed Decision

The alternate proposed decision of Commissioner Bohn in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code, and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. In compliance with the ALJ's Ruling of October 21, 2010, comments were timely filed on November 17, 2010 by Cal-Am, MCWD, MCWRA, Citizens for Public Water, the Public Trust Alliance, DRA, and MPWMD. Reply comments were timely filed on November 22, 2010 by Cal-Am, MCWD, MCWRA, the Public Trust Alliance, DRA, MPWMD, and the City of Monterey.

We have addressed the substance of the comments throughout this decision and made various changes, as appropriate. We have given no weight to arguments or proposals put forth only in ex parte communications. We have made various changes throughout the decision, reflecting factual, legal, and technical errors, pursuant to Rule 14.3 (c).

The Alternate Proposed Decision had proposed the following modifications to the Settlement Agreement and the Water Purchase Agreement:

1. The capital cost cap for the Regional Project facilities was limited to $224.4 million, with a cost cap ceiling of $272.5 million, beyond which cost recovery from Cal-Am's ratepayers would be allowed upon a showing of exceptional circumstances and subject to a rigorous reasonableness review.

2. The idea of a fees "limit" was removed and any fees charged by MCWD for new connections as the former Fort Ord area is developed should be contributed to offset the indebtedness of the Regional Project, which will reduce overall costs to Cal-Am ratepayers.

3. MCWD was directed to make an additional $3 million contribution associated with the intangible benefits it receives from its participation in the Regional Project.

4. Because the financing plans are not final, the Settlement Agreement and Water Purchase Agreement were modified to require Cal-Am to file and serve the financing plans in this proceeding. However, to the extent that the financing plan determines that the cost of debt will not exceed 6%, the debt service coverage is set at 1.0 and that State Revolving Funds or grants can be accessed, the filing would be considered a notice in this proceeding, without further review. While not asserting jurisdiction over the Public Agencies, if the terms of the financing plan exceed these limits, the financing plan would be subject to Commission review and approval.

5. A capital cost cap of $95 million was adopted for the Cal-Am only facilities, with a cost cap ceiling of $106.875 million, beyond which recovery from ratepayers would be allowed upon a showing of exceptional circumstances and subject to a rigorous reasonableness review.

6. To the extent that the capital cost caps were exceeded but were less than the cost cap ceilings we place on the Regional Facilities and the Cal-Am-owned facilities, Cal-Am was required to file an application to justify why ratepayers should pay for additional costs. These applications must be fully documented and supported. Review of such requests would include review the impact of financing on the overall cost of the Regional Project in those proceedings.

7. If the capital costs for the Regional Facilities or the Cal-Am-owned facilities exceed the cost cap ceilings established by this decision, Cal-Am would file an application to explain the extraordinary circumstances under which these costs have been incurred and justify why they should be recovered from ratepayers.

8. Three modifications were made to the advice letter procedure proposed by the Settling Parties. First, we required Cal-Am to file Tier 3 advice letters to recover its purchased water costs and provided 120 days for staff to process these advice letters. Second, for Cal-Am facilities, we required Tier 3 advice letters and required 120 days for staff processing of these advice letters. Finally, we revised the procedure for the final advice letter filing.

9. We agreed with DRA to review O&M costs in a separate phase of this proceeding, or in a successor proceeding.

Based on comments filed by Cal-Am, MCWD, MCWRA, we are persuaded that these modifications are not necessary to ensure that Cal-Am ratepayers will be provided an adequate supply of water at a reasonable price. Accordingly, we have removed or altered these modifications and approve the Settlement Agreement and Implementing Agreements as proposed.