12. Water Cost of Capital Adjustment Mechanism

We will adopt the same Cost of Capital Adjustment Mechanism adopted in D.09-07-051 using an imputed Baa rating equivalent²⁶ but with one modification: we increase the lower boundary of the dead band to 200 basis points to reduce the potential for a large downward adjustment to the authorized return on equity caused by the economic recovery which may significantly change the Moody's bond indices. This is the same modification adopted in D.10-10-036 in
A.09-05-001 et al. for the other single-district Class A water companies.

²⁶ In D.10-10-036 in A.09-05-001 et al., we use the actual Moody's rating for the rated companies or otherwise impute a rating. Baa is a low investment grade rating which we used for Valencia, one of the smaller Class A companies.