ALJ/MFG/avs Mailed 8/25/2003

Decision 03-08-069 August 21, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of Apple Valley Ranchos Water Company (U 346 W) for Authority to Increase Rates (as authorized by NOI 02-03-017): In 2003 of $2,775,000 or 27.1% above revenues generated by present rates, in 2004 of $497,839 or 3.8% above the revenues generated by the rates proposed for 2003, in 2005 of $507,422 or 3.7% above the 2004 revenue requirements.

Application 02-03-046 (Filed March 19, 2002)

David A. Ebershoff, Attorney at Law, of Fulbright and

Jaworski, L.L.P. and Edward N. Jackson of Park Water

Company, for Apple Valley Ranchos Water Co., applicant.

Marion Peleo, Attorney at Law, and Daniel R. Paige, for the

Office of Ratepayer Advocates.

OPINION RESOLVING GENERAL RATE CASE

TABLE OF CONTENTS

TITLE PAGE

I. Summary 22

II. Application 22

II. The System 33

IV. Procedural History 33

V. Evidentiary Hearing 44

VI. Joint Comparison Exhibit 55

VII. Revenues 77

A. Customer Consumption 77

B. Miscellaneous Revenues 1010

VIII. Payroll 1111

A. O&M Payroll 1212

B. A&G Payroll 1313

C. A&G Payroll Benefits 1313

IX. Operations and Maintenance - Other 1313

A. Purchased Power 1414

B. Leased Water Rights & Assessments 1414

C. Uncollectibles 1414

D. Other 1414

X. Administrative and General Other Expenses 1515

A. Insurance 1515

B. Regulatory Expense 1616

C. Franchise Fees 1818

D. Outside Services 1818

E. A&G Transfer 1919

XI. Main Office Expense 1919

XII. Taxes and Depreciation 2020

XIII. Rate Base 2121

A. Booster Pump Station 2222

B. New Well 2222

C. Mojave Basin Adjudication 2424

D. Emergency Generators 2626

E. Tank Coating 2929

F. Materials & Supplies 2929

G. Working Cash 3030

H. Depreciation Reserve 3030

XIV. Cost of Capital 3030

A. Financial Models 3232

1. AVR's Financial Models 3333

2. ORA's Financial Models 3434

TITLE PAGE

3. Discussion 3535

B. Risk Factors 3838

1. AVR's Risk Assessment 3838

2. ORA's Risk Assessment 3939

3. Discussion 3939

XV. Radon Memorandum Account 4343

XVI. Reduced Rates for Low Income Customers 4545

XVII. Summary of Earnings 4747

XVIII. Rate Design 4848

XIX. Comments on the Proposed Decision of the ALJ 4848

XX. Assignment of Proceeding 4949

Findings of Fact 4949

Conclusions of Law 5353

ORDER 5454

APPENDIX A

APPENDIX B

APPENDIX C

APPENDIX D

APPENDIX E

APPENDIX F

OPINION RESOLVING GENERAL RATE CASE

I. Summary

Apple Valley Ranchos Water Company (AVR) is authorized to increase its rates by amounts designed to increase revenue by $1,600,300 or 14.89% in 2003; $309,600 or 2.46% in 2004; and $327,300 or 2.54% in 2005. The 2003 rates are effective January 1, 2003 as set forth in Decision (D.) 02-12-063, dated December 19, 2002. We authorize rates of return on rate base of 9.49% for the year 2003; 9.48% in 2004; and, 9.47% in 2005. The return on common equity (ROE) authorized by this decision is 10.10%.

As a result of the revenue increase granted by this decision, the bimonthly bill for the average residential customer using 50 hundred cubic feet (Ccf) of water with a 5/8" by ¾" meter would increase by $13.67 or 15.3% from $89.45 to $103.12 for the year 2003.