II. Background

California-American Water Company (Cal-Am) filed this application in March 1997. The purpose of the application was to seek a certificate of public convenience and necessity (CPCN) and ratemaking treatment for a new water supply to replace existing supply taken from the Carmel River to serve its Monterey Division customers. The existing water supply must be replaced because the State Water Resources Control Board has ordered Cal-Am to find an alternative source for 10,730 acre feet of water currently taken from the Carmel River, approximately 69% of Cal-Am's current water supply for the Monterey Division. In the March 1997 application, Cal-Am proposed to construct a dam and storage reservoir to serve this purpose. The Monterey Peninsula Water Management District (District) served as the lead agency under the California Environmental Quality Act (CEQA) for purposes of reviewing the dam.

Cal-Am is not the first entity to propose a similar dam project to serve customers on the Monterey Peninsula. The proposed project has been pursued by other local entities in the past and has been the subject of considerable public controversy. Voters in the affected community have opposed construction of a dam in the location proposed by Cal-Am in the past.

After Cal-Am filed its application, the state legislature adopted legislation (Assembly Bill 1182, Chapter 797, Stats. 1998, Keeley) directing the Commission to identify a long-term water supply contingency plan to replace the 10,730-acre feet from the Carmel River. The Commission engaged consultants to assist in the development of the water supply alternative, commonly referred to as Plan B. The Plan B Project Report was issued in August 2002.

On February 11, 2003, Cal-Am filed two motions and an amendment to its March 1997 application. The amendment modifies Cal-Am's application in this proceeding to request a CPCN to construct a Coastal Water Project,¹ consisting of a desalination facility and aquifer storage and recovery component instead of the previously proposed Carmel River Dam. On March 12, 2003, the assigned Administrative Law Judge (ALJ) issued a ruling granting part of the relief sought in the motions, and requesting additional information prior to ruling on the lead agency and ratemaking issues. Cal-Am complied with that ruling on April 1, 2003, and comments were filed on April 11, 2003. The District filed comments on May 7, 2003 and Cal-Am responded on May 9, 2003.

Testimony was served by Cal-Am on ratemaking issues on April 1, 2003 and by the Office of Ratepayer Advocates (ORA) on May 7, 2003. Cal-Am served rebuttal testimony on May 9, 2003. ORA served surrebuttal testimony on May 13, 2003. Evidentiary hearings were held on May 14, 2003.