ALJ/DUG/gd2 Date of Issuance 12/21/2010

Decision 10-12-057 December 16, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Great Oaks Water Company (U162W) for Authority to Establish its Authorized Cost of Capital Pursuant to the Rate Case Plan for Water Utilities.

Application 09-05-007 (Filed May 4, 2009)

DECISION ON BASE YEAR 2010 COST OF CAPITAL
AND SUBSEQUENT YEARS' ADJUSTMENT MECHANISM
FOR GREAT OAKS WATER COMPANY

DECISION ON BASE YEAR 2010 COST OF CAPITAL AND SUBSEQUENT YEARS' ADJUSTMENT MECHANISM FOR GREAT OAKS WATER COMPANY 1

1. Summary 2

2. Jurisdiction and Background 4

3. Summary of Parties' Requests 7

4. Regulatory Environment 7

5. Today's Capital Markets 9

5.1. Legal Standard 10

6. Lay and Expert Witnesses 11

7. Cost of Capital Methodology 14

7.1. Positions of the Parties 14

7.2. Discussion - Methodology 15

8. Capital Structure 17

9. The Cost of Long Term Debt 22

10. The Cost of Equity 23

10.1. Positions of the Parties 23

10.2. Effect of Water Revenue Adjustment Mechanism (WRAM) on Market Return 26

10.3. Discussion-- Cost of Equity 27

11. Adopted Capital Structure and Cost of Capital 29

12. Water Cost of Capital Adjustment Mechanism 30

13. Urgent Need for Ongoing Independent Audits 30

13.1. Summary 30

13.2. Selecting an Independent CPA 33

13.3. CPA Audit Cost Memorandum Account 35

14. Procedural Matters 36

15. Comments on Proposed Decision 36

16. Assignment of Proceeding 37

Findings of Fact 37

Conclusions of Law 38

ORDER 40

DECISION ON BASE YEAR 2010 COST OF CAPITAL
AND SUBSEQUENT YEARS' ADJUSTMENT MECHANISM
FOR GREAT OAKS WATER COMPANY