VIII. Assignment of Proceeding

Geoffrey F. Brown is the Assigned Commissioner. John E. Thorson is the assigned ALJ and presiding officer in this proceeding.

1. CWS has entered into a settlement with ORA for the company's applications for the Palos Verdes, Dominguez, Selma, and Oroville districts. Intervenors Leona Valley Cherry Growers Association and Jeffrey Young also signed the settlement. The settlement resolves every issue between the applicant and ORA in this proceeding.

2. The proposed settlement is supported by all of the active parties eligible to participate in this proceeding.

3. The active parties are fairly reflective of the affected interests in this proceeding.

4. No term of the proposed settlement contravenes statutory provisions or prior Commission decisions.

5. The settlement conveys sufficient information to permit the Commission to discharge its future regulatory obligations with respect to the parties and their interests.

6. No party opposes approving the proposed settlement.

7. The summaries of earnings presented in Attachment D: Appendix A; the quantities and calculations presented in Attachment D: Appendices B-E; and the capital projects to be processed by advice letter presented in Table 3 and Hearing Exhibit No. 36, all based on the parties' settlement, are reasonable, justified, and sufficient for ratemaking purposes.

8. At the time of the evidence presented to the Commission, CWS's service in the Oroville, Selma, Dominguez, and Palos Verdes districts met all applicable federal and state water quality standards and the provisions of General Order (GO) 103.

1. The proposed settlement is an uncontested agreement as defined in Rule 51(f) and an all-party settlement under San Diego Gas & Electric, 46 CPUC 2d 538 (1992). The proposed settlement satisfies the requirements of Rule 51(f) and San Diego Gas & Electric.

2. The proposed settlement is reasonable in consideration of the whole record, consistent with law, and in the public interest.

3. The proposed settlement should be adopted.

4. The revised rates, step increases, and tariff rule revisions set forth in Attachment D: Appendix F, based on the parties' settlement, are justified.

5. This decision should be made effective immediately to enable applicant to implement the settlement without delay.

6. CWS's service in Oroville, Selma, Dominguez, and Palos Verdes districts, at the time of the evidence presented to the Commission, complied with all applicable federal and state water quality standards and the provisions of GO 103.

ORDER

IT IS ORDERED that:

1. The joint Motion for Adoption of Settlement between California Water Service Company (CWS) and the Office of Ratepayer Advocates (ORA) is granted. The settlement, incorporating the addendum to the settlement agreement (set forth in Attachments A and B) is adopted.

2. CWS is authorized to file in accordance with General Order (GO) 96-A, and to make effective, on not less than five days' notice, tariffs containing the test year 2003 increases for its districts as provided in the attachments to this decision. The revised rates shall apply to service rendered on and after the tariff's effective date.

3. Subject to pro forma tests after the 2003 increases are effective, CWS also is authorized to file in accordance with GO 96-A, and to make effective, on not less than five days' notice, tariffs containing the test year 2004 increases for its districts as provided in this decision and the attachments to this decision. The revised rates shall apply to service rendered on and after the tariff's effective date.

4. Advice letters for authorized rate increases for 2005 and 2006 may be filed in accordance with GO 96-A no earlier than November 1st of the preceding year. The filing shall include appropriate work papers. The increase shall be the amount authorized herein, or a proportionate lesser increase if CWS's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the adopted change to this pro forma test, for the twelve months ending September 30th of the preceding year, exceeds 8.6%. The advice letters shall be reviewed by the Commission's Water Division for conformity with this decision including the applicable provisions of the settlement (Attachment A), settlement addendum (Attachment B), and the Joint Comparison Exhibit (Hearing Exhibit No. 25), and shall go into effect upon the Water Division's determination of compliance, not earlier than January 1st of the year for which the increase is authorized, or 30 days after filing, whichever is later. The tariffs shall be applicable to service rendered on or after the effective date.

5. CWS is authorized to file advice letters to recover or refund the difference between the interim rates allowed by Decision (D.) 03-10-072 and those authorized in this decision over no less than one year. The advice letter filings shall include all supporting data and calculations. The Water Division shall inform the Commission if it finds the proposed increase does not comply with this decision or other Commission requirements.

6. CWS is authorized to file advice letter rate base offsets to recover the reasonable capital costs of the improvements enumerated in the settlement, Attachment A, at §§ 2.40-2.48. Attachment A, ¶¶ 2.40-2.48 includes the approved description and scope of each project, the estimated cost, and the cap on project costs allowable in the advice letter filing, if any. The Water Division shall use these factors in its review of each advice letter.

7. For the advice letter offsets in Ordering Paragraph No. 6 which relate to projects concerning the Dominguez District's groundwater capacity, CWS is required to file the advice letters within 60 days from the date the facility is used and useful in the provision of utility service. In those filings, CWS shall recalculate the purchased water and groundwater mix available to the Dominguez District and adjust rates to reflect changes in purchased water, pump taxes, and purchased power that result from the new mix.

8. Within 90 days of the effective date of this decision, CWS shall report to the Commission, by application, the Dominguez District pre-merger headquarters that is not longer used in district operations (Relinquished Property). The application will ask for a Commission determination on whether, and to what extent, ratepayers share in the sales proceeds from the disposition of the Relinquished Property.

9. CWS shall establish balancing accounts for purchased water and power in the Oroville District consistent with the established procedures for maintaining and tracking such accounts.

10. CWS is allowed to file an expense offset advice letter for the Oroville District if, due to additional service interruption from its main source of supply, its purchased water from Butte County exceeds the adopted quantity by $10,000 or more annually.

This order is effective today.

Dated April 22, 2004, 2004, at San Francisco, California.

LIST OF ATTACHMENTS

A-Settlement (Oct. 23, 2003)

B-Addendum to Settlement (Oct. 27, 2003)

C-Joint Comparison Exhibit (Nov. 17, 2003) (Selected Table)

D-Ratesetting Appendices

Appendix A: Summary of Earnings and Rates of Return

Appendix B: Dominguez (South Bay) District

Appendix C: Oroville District

Appendix D: Palos Verdes District

Appendix E: Selma District

Appendix F: Tariffs

Appendix G: Bill Comparisons (Present v. Adopted)

1.00 GENERAL

1.01 The Parties to this Settlement before the California Public Utilities Commission ("Commission") are California Water Service Company ("Cal Water"), the Office of Ratepayer Advocates ("ORA"), the Leona Valley Cherry Growers Association ("LVCGA") and Jeffrey Young (Young) -- collectively, "the Parties."1 The Parties, desiring to avoid the expense and inconvenience attendant to the litigation before the Commission have agreed on this Settlement which they now submit for adoption.

1.02 Because this Settlement represents a compromise by them, the Parties have entered into the Settlement on the basis that its approval by the Commission not be construed as an admission or concession by any Party regarding any fact or matter or law in dispute in this proceeding. Furthermore, the Parties intend that the approval of this Settlement by the Commission not be construed as a precedent or statement of policy of any kind except as it relates to the current and future proceedings addressed in the Settlement.

2.0 SETTLEMENT TERMS

2.01 Service Connections

Cal Water and ORA both used recorded averages and known trends to determine the number of services by class in the four districts in this proceeding In general, ORA had access to more recent data on growth in services through the end of 2002. Therefore, with the exceptions outlined below, Cal Water has accepted ORA's estimates.

2.02 The parties agree to use 20 as the number of industrial customers in Selma in 2003 and 2004. Growth through 2001 had indicated an average annual increase of one customer per year. However, when 2002 was taken into account, it appears that growth in this class has halted. ORA had originally forecast 21 customers in 2004.

2.03 Similarly, the parties agreed to use 7 as the estimate of Selma other customers in 2003 and 2004. More recent data showed the growth in this class had stopped. This is a reduction of 1 customer in 2004 from ORA's original estimate.

2.04 For Selma residential customers, ORA had originally assumed that growth in the first half of 2003 would be duplicated in the second half of 2003, resulting in 2,259 average customers in 2004. In addition, Cal Water's district management provided some erroneous data on services to ORA's witness. Cal Water's rebuttal testimony disputed that the growth would continue at the same pace as the first half of the year, noting that the resulting estimate of growth would be higher than any in the last ten-year recorded period. To resolve the dispute, Cal Water and ORA agreed to use a mid-year estimate resulting in 108 additional customers from mid-year 2003 to mid-year 2004. The three-year average annual growth for this class was 89 customers per year using 1999-2001 and 102 customers per year using the period 2000-2002. Given the large amount of growth in the first half of 2003, the parties agreed that 108 customers year-to-year represented a reasonable estimate of future growth. Therefore the parties agree to use 2047 (ORA's corrected estimate) for 2003 average services and 2155 for 2004 average services.

2.10 Water Sales

Cal Water and ORA used different methods to determine water sales in their respective reports. ORA relied exclusively on the modified bean method to determine sales per customer, while Cal Water used a regression method with the potential for more variables using the "E-Views" software package. The Commission has experience evaluating the results of both methods, and a combination of both methods has been used by Cal Water and ORA in past proceedings. Much of the discussion in Cal Water's rebuttal testimony and at the settlement conferences revolved around whether the results of ORA's Bean Model and Cal Water's E-Views package reasonably estimate future water sales.

2.11 Dominguez District

The parties agree that due to the limited data available2, the most reasonable estimates of water sales for the Dominguez-South Bay district is a three-year average of recorded consumption per customer. The parties calculate 179.8 Ccf per connection for residential, 1,504.3 Ccf per customer for business, 1,583.2 Ccf per customer for multiple family, 4,185.5 Ccf per customer for public authority, and 1,464.5 Ccf per customer for other. The parties agree that because a vast majority of reclaimed water is sold to a single customer they will calculate reclaimed water based on average total sales for the class for the last three years (1,378.4 kCcf for the class). In addition, Cal Water accepts ORA's recommendation for industrial sales per customer.

2.12 Selma District

For Selma public authority sales, Cal Water had initially provided erroneous data to ORA's staff witness. After the witness reran the bean method using corrected data, ORA determined its estimate to be 1,181.5 Ccf per customer. Cal Water agrees to this figure.

2.13 Palos Verdes District

In Palos Verdes, ORA reran the bean method using corrected data. For residential class, the corrected sales per customer is 330.5 Ccf. For business, the corrected sales per customer is 1,646.0 Ccf. For Multi-family, the corrected sales per customer is 2,119.2 Ccf. For industrial, the corrected sales per customer is 777.7 Ccf. For public authority, the corrected sales per customer is 1,921.2 Ccf. Cal Water accepts these new recommendations by ORA.

For "other" customers, the parties agree that neither party's method produced a result that seemed consistent with the recorded data. ORA's estimate was higher than all but one of the last 14 recorded years, and Cal Water's estimate was considerably lower than any of the last three years. Based on this evidence, the parties agreed to use a three-year average of sales per customer of 3,582.9 Ccf.

2.14 Oroville District

For multi-family customers, Cal Water and ORA both used regression analysis to determine estimated sales, with the distinction that Cal Water disregarded data prior to 1996 in its analysis. Cal Water believed that there was a change in the character of consumption in this class as a large customer was added in 1995. ORA was unable to determine in the limited time available if the single customer had such an impact. Faced with the uncertainty over this point, the parties agree that there is merit in both positions, but that neither position is agreeable to both parties. Therefore, the parties agree to use the average of the results of the two methods (4,943.5 Ccf per customer).

For irrigation customers, Cal Water and ORA note that due to the continued disruption of service from PG&E's facilities, water use by Cal Water's irrigation customers has been limited since the beginning of 2002. Considering that consumption per customer declined to 17,800 Ccf in 2002 and 7,300 Ccf per customer through June of 2003, the parties agree that irrigation use will be limited to 20,500 Ccf per customer in the test years. This estimate is lower than both parties' original estimates because of the supply disruption.

2.20 District Operating, Maintenance, Administrative and General Expenses

In general, because their report was written later, ORA had access to more recent data on operating, maintenance, administrative and general expenses through the end of 2002. Therefore, with the exceptions outlined below, Cal Water has accepted ORA's estimates.

2.21 ORA estimated payroll in the Dominguez-South Bay district using 2002 recorded payroll as a base. However, Cal Water pointed out in its rebuttal testimony that district synergies began accruing at the beginning of 2002 with the consolidation of Dominguez, Palos Verdes, and Hermosa-Redondo into a single operating district. Since ORA had properly credited the synergy savings elsewhere, the reduction in payroll from 2001 to 2002 would have been credited to the ratepayers twice. Based on Cal Water's estimate of $463,000 payroll savings in the combined district, ORA and Cal Water agree to use the Dominguez 2002 recorded payroll as a base, plus $463,000 in operating payroll representing the savings credited elsewhere in the summary of earnings. This base is inflated using Cal Water's union contract escalation factors for 2003 and 2004 to determine test year payroll. Furthermore, the parties agree to use ORA's estimate for Palos Verdes payroll.

2.22 Dominguez Rent Issue

Cal Water merged its Palos Verdes; Hermosa-Redondo and Dominguez district operations into a regional office center (Regional Office). The office center is owned and operated by CWS Utilities Inc. (CWS), a non-regulated affiliate of Cal Water. Cal Water leases approximately 60% of the office and 75% of the land for use as its Regional Office. The remainder of the office center is to be leased to a third party.

In connection with the merger, Cal Water transferred properties which it claims are no longer used and useful to its affiliate CWS (Relinquished Properties). CWS exchanged the Relinquished Properties with a real estate developer, JCC Holmes Inc., for a build-to-suit office center.

In its general rate application for the Dominguez district, Cal Water requested recovery of the proportional rent allocated to the Dominguez district operations, approximately $150,000 later updated to approximately $140,000. ORA took the position that Dominguez district ratepayers should only pay the revenue requirement associated with the historical costs of owning and operating the pre-merger Dominguez district headquarters, and no rent should be allocated to Dominguez district ratepayers until the issue of the sale of these properties is resolved as described in D.03-09-021. Furthermore, ORA requested the Commission to void the transaction.

The parties agree Cal Water should report the sales of Relinquished Properties in accordance with D.03-09-021, and agreed that the Dominguez district ratepayers should continue to pay the revenue requirement associated with operating Dominguez' pre-merger headquarters.

The parties agree if the Commission orders Cal Water to share the gain on the sale of Relinquished Properties with the ratepayer, Cal Water will make a showing in its next general rate case about charging an equivalent rent to ratepayers. ORA recognizes that the ratepayers are not entitled to pay the revenue requirement associated with operating Dominguez' pre-merger headquarters and share the gain on the sale of the Relinquished Properties.

Furthermore, if the Commission finds that ratepayers do not share in the gain on sale of Relinquished Properties, ratepayers shall continue to pay the revenue requirement associated with the costs of owning and operating the pre-merger Dominguez district headquarters. The future costs shall be computed by continuing to amortize the building over a thirty-year period ending in 2030. If a Commission decision is issued, which orders Cal Water to take action other than sharing or not sharing the gain with the ratepayer, the parties agree not to be bound by this agreement.

2.30 District Rate Base

ORA had access to end-of-year 2002 recorded plant additions, whereas Cal Water's estimates relied upon the 2002 capital budget. For the most part, ORA recognized the proper plant additions for 2002; Cal Water agrees to their estimates with certain minor exceptions noted below. ORA furthermore made many recommendations with respect to the capital projects in test years 2003 and 2004 in the districts. In general, Cal Water agrees with those recommendations, with the exceptions noted below. Many of ORA's recommendations request advice letter filings. These filings are enumerated in the next section.

2.31 In all districts in this proceeding, Cal Water requested capital projects for water supply and facilities master plans (WSMP). ORA recommended the Commission disallow these projects mainly because it hadn't been convinced of the need for the projects in all districts. Both parties agreed that a WSMP had been completed in 2001 in Palos Verdes. Furthermore, ORA contended that water supply planning is already a routine part of Cal Water's business. In its rebuttal, Cal Water contended that these plans serve as a basis for facilities construction and management for a twenty-year horizon and will help Cal Water justify future capital projects to the Commission. Cal Water further stated it did not have the expertise in its engineering department to complete these studies. Cal Water also pointed out that these plans would be less expensive if Cal Water had experienced personnel on staff to complete the studies. After discussions, Cal Water and ORA agree that WSMPs are prudent. However, ORA and Cal Water now agree that the plans for Oroville and Selma are less critical than for Dominguez-South Bay. Therefore, ORA agrees to allow a one-time cost in the 2004 capital budget of $135,000 for the WSMP in Dominguez-South Bay for $135,000 in the 2004 capital budget. Cal Water will complete WSMPs for Selma and Oroville with internal staff, but those capital projects will not be included in the test year budgets. Furthermore, ORA agrees that Cal Water should hire without adding to the operating expenses of the general office, the additional engineering complement necessary to complete future WSMP projects in-house.

2.32 ORA and Cal Water now agree on an advice letter filing for Project 7011, a 2003 main project in Selma, to improve service. Originally, Cal Water was required to provide additional justification for the project in an advice letter, but after discussing the issue during settlement, the parties agreed ORA had now received enough information to justify the project. ORA continues to recommend this project as an advice letter filing because of its high cost relative to the rest of the Selma project. However, ORA proposes a cap on the project cost of $290,000. This cap represents the estimated capital cost of the main replacement plus a five-percent contingency. Cal Water does not ordinarily estimate with a provision for contingencies.

2.33 ORA initially opposed adding $18,965 actually expended in Selma in 2002 for a meter replacement program budget item. At the settlement conference, Cal Water provided new information showing the company had purchased 213 meters under this budget item for new developments and meter replacements, not seven as initially described. After this information was confirmed, ORA agreed to recognize the expenditure.

2.34 ORA initially opposed adding approximately $100,000 for a 2002 recorded project to replace a main in downtown Selma. Cal Water had constructed a 12" main where ORA believed a 6" main would be adequate. At the settlement conference, Cal Water explained that a 12" main was necessary for fire-flow in this commercial area. After reviewing the appropriate calculations, ORA agreed to allow the full amount of the main replacement in 2002.

2.35 ORA had initially recommended the Commission not allow a main replacement project #7045 in 2004 in Selma because it felt Cal Water would have a difficult time completing all its budgeted projects. At the settlement conference, Cal Water explained that its delays in completing budgeted projects in 2002 and 2003 were due to cash-flow constraints related to regulatory lags. Because many of the large rate increase requests from that time frame have since been approved3, and because Cal Water has recently issued equity, Cal Water believes it can complete future capital projects on time. Furthermore, Cal Water added that different contractors are used for main projects and other capital projects so that completion of the main projects does not depend on the scheduling of other projects. As a result of this analysis, as well as a determination that 2003 main replacements in Selma will be completed by the end of the year, ORA agrees that project #7045 should be included in the 2004 capital budget for $69,000.

2.36 ORA had initially recommended the Commission not allow $50,000 in security mitigations in each of the districts because it had not received substantial justification. Cal Water indicated the justification would be found in its Vulnerability Assessments (VAs) in compliance with the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. However, VAs for Selma and Oroville are not due to be complete until 2004. ORA did not review the Dominguez and Palos Verdes combined VA. At the settlement conference, Cal Water provided a list of the capital improvements recommended in the VA. After reviewing the new information, ORA agrees to allow $50,000 in Dominguez-South Bay and $50,000 in Palos Verdes in 2004 for these projects. Cal Water should use its judgement to determine the highest priority items and complete them in 2004. Because the exact amount of security mitigations needed in Selma and Oroville will not be known until VAs are complete, the parties agree to defer these projects out of this rate case cycle.

2.40 Advice Letters

2.41 In general, ORA has recommended advice letter filings for capital projects that are larger than typical projects for the district or which have some uncertainty over timing or cost. Cal Water agrees that the advice letter process imparts more certainty in these cases and protects both the utility and its ratepayers from inaccurately estimated project costs or schedules. The parties understand the Commission's Water Division processes these advice letters, and that the Water Division has extremely limited staff available for review. Therefore, the parties request the Commission make specific findings and orders authorizing the advice letters below.

2.42 In the Dominguez District, Cal Water is currently pumping less than 40% of its water rights, instead purchasing water. Cal Water has proposed drilling two wells to alleviate this problem. The first, at station 203, is estimated at $725,000 including well drilling, pumps, structures, and water treatment equipment. The second, for which a location has not yet been found, is estimated at $1,025,000 including land purchase. ORA believes that an advice letter for each well would help address cost and scheduling uncertainty. Cal Water agrees.

2.43 In further efforts to improve its pumping capacity, Cal Water is evaluating treatment options for three existing wells that have been idled due to water quality concerns. For station 294-01, Cal Water had proposed a $330,000 project for the study and treatment of a water quality problem. ORA recommended that the study be completed and appropriate treatment works constructed in line with the study conclusions. Because of the uncertainty over timing and the results of the treatment study, ORA recommended Cal Water be allowed to file an advice letter to recover these costs when they are completed. Cal Water agreed. Similarly, Cal Water and ORA agree the Commission should adopt an advice letter process for station 298-01 and station 279-01. Both wells have similar water quality problems, and in both cases Cal Water has proposed first completing a study before constructing treatment plants. In summary ORA and Cal Water agree that three advice letters should be filed for these combination study and treatment projects.

2.44 In Oroville, Cal Water requested $712,400 for a study and treatment to deactivate cryptosporidium in 2003. Again, because the type of treatment is unknown pending the outcome of the study, ORA recommended Cal Water be allowed to file an advice letter to cover the costs of both projects once the treatment recommended by the study is constructed. In addition, Cal Water may include in the advice letter filing the costs associated with a backup generator at the treatment plant to ensure supply reliability.

2.45 In Palos Verdes, Cal Water proposed a $13.8 million water supply reliability upgrade, most in test year 2004. The project is necessary because the current configuration of mains and storage in the District provides only one source of water to the majority of customers. In the event of an earthquake or other supply disruption, customers could be without water service for long periods, endangering public health. Cal Water relied on a study by Montgomery Watson to determine the best plan of capital improvements to ensure this reliability. ORA agreed that the projects were necessary but had some questions about the cost estimates provided by Montgomery Watson. The $13.8 million is a broad preliminary estimate, with 56.25% of contingency and administrative costs in addition to actual construction costs, which ORA believes should be eliminated or greatly reduced once CWS obtains better estimates from its contractors. Therefore, ORA recommended that Cal Water be authorized to file advice letters for these projects. In settlement discussions, Cal Water proposed the advice letters be separated into the following used and useful portions:

2.46 In its report for Palos Verdes, ORA also recommended Cal Water be allowed to file advice letters to recover the cost of its SCADA replacement program budgeted at $200,000 and digital mapping project budgeted at $196,100. The SCADA replacements are necessary to replace units that are no longer useful as the manufacturer has gone out of business. The SCADA and digital mapping project were delayed from 2002. Cal Water agrees that it should be allowed to file advice letters for these projects when they are completed.

2.47 In its report on Selma, ORA recommended that the 2003 project for a pumped storage facility and backup generator for $962,500, including equipment and land, should be recovered through an advice letter. Selma currently has adequate overall supply but may have problems with peak demands. The pumped storage facility will help meet peak demands and fireflows without additional supply. Cal Water agrees that due to uncertainty over timing, this project's cost should be recovered through an advice letter.

2.48 Also in its report on Selma, ORA recommended the advice letter process for a $792,000, including equipment and land, new well and backup generator in 2004. As discussed in the section on service connections, Selma is growing and needs additional supply sources for redundancy and increased demand. Again, due to uncertainty over timing of this plant addition, Cal Water agrees it should be handled through the advice letter process.

3.0 GENERAL OFFICE

3.10 Personnel

In its initial filing, Cal Water used a 2001 base year for determining test year payroll. Because ORA had access to newer data, it used a 2002 base year. This led to a number of differences that the parties were able to reconcile after ORA's report and Cal Water's rebuttal were filed.

3.11 The parties agree that positions approved in D.03-09-021 and accepted in the text of ORA's report should be accounted for in rates. To that end, the parties agree that 2002 base payroll should be adjusted to annualize any position filled during 2002. Furthermore, for those positions approved in D.03-09-021 that are not yet filled, ORA and Cal Water agree they should be shown as additions in 2004, as they are unlikely to be filled in the two months remaining in 2003.

3.12 Similarly, the parties agree that other positions ORA has approved, including QA Manager, DBA Manager, Operations Manager, and Financial Reporting Analyst, which were filled during 2002, should be reflected as an annual cost in 2002 base payroll.

3.13 The parties agree that all other increases to general office complement, including those noted below, should be reflected in 2004.

3.14 ORA's report originally allowed only 50% of two positions of Financial Analyst and LIMS administrator. ORA initially determined that the Financial Analyst would work half-time on California Water Service Group (Group) activities and that the LIMS administrator would work half-time on contracted laboratory services. During settlement discussions, Cal Water explained that Group activities are allocated approximately 95% to Cal Water, so the effective allocation of the financial analyst's time is as much as 97% to Cal Water even under ORA's assumption. However, in the interests of avoiding litigation of such a small dispute ($30,000) the parties agreed to allocate 90% of the financial analyst's time to Cal Water. Also during settlement discussions, Cal Water pointed out that the LIMS administrator would be overseeing all water quality tests including 10-15% for outside contracts. Due to this new information, ORA and Cal Water agree to allocate 75% of the LIMS administrator's time to Cal Water in the interests of avoiding litigation of such a small dispute ($16,500).

3.15 ORA initially recommended against Cal Water's request for 18 additional employees to implement a company-wide proactive main flushing program. ORA witnesses stated in settlement talks that the request seemed excessive and that no law or regulation requires this flushing. Cal Water contended in direct and rebuttal testimony that the California Department of Health Services had a strong interest in Cal Water developing a flushing program to meet water quality needs. Further, Cal Water believes proactive flushing is prudent and good waterworks practice. Cal Water further noted that other Commission-regulated water utilities have similar programs. After discussion, the parties agreed that due to the conversion of San Francisco Water Department purchased water to chloramine disinfection, a proactive flushing program was needed in Cal Water's affected districts. The parties agree Cal Water should be allowed to hire a program engineer and a single flushing team comprising four members in 2004.

3.16 After discussion regarding three additional personnel requests from Cal Water that were initially rejected by ORA (Arsenic Engineer, Vice President of Government and Community Relations, and Accounting Analyst), the parties agree that Cal Water should be allowed an additional $125,000 for payroll in 2004. This payroll should be used on the incremental personnel that best meets the needs of Cal Water in meeting its obligations to its customers.

3.17 In relation to capital projects 7270 for $120,400, 7873 for $69,700, and 7519 for $140,400, ORA initially forecast savings of $395,000 in 2004. Cal Water disputed the nature of some of these savings, stating they would save from future cost increases, costs would not be reduced until later years, or that time savings would simply allow employees to do other necessary work that was currently being neglected. ORA's approval of these projects as described below was based on the potential for savings. As a settlement, the parties agree that in exchange for allowing the projects in the capital budget, general office expenses should be reduced by the revenue requirement of the project capital cost, approximately 20% including a provision for taxes and depreciation, a total of $66,100. Cal Water does agree to ORA's projected cost savings of $19,500 for project 7553 and $15,000 for project 7556. The total of these adjustments, $100,600, should be deducted from 2004 general office payroll. This will ensure that completion of the projects will at least be neutral to the ratepayers from a cost standpoint. As future savings occur, they will be reflected in later general rate case filings by the company.

3.20 O&M and A&G Expenses in General Office

In general, because their report was written later, ORA had access to more recent data on operating, maintenance, administrative and general expenses through the end of 2002. Therefore, with the exceptions outlined below, Cal Water has accepted ORA's estimates.

3.21 In 2000, Cal water changed where it booked unregulated credits for water quality services from Operations Expense-Water Treatment to General Administrative Expense. In 2002, Cal Water made a similar accounting change in its billing credits from Operations -Customer Accounting to General Administrative expense. These changes distorted the analysis of these three categories for the test years. In the interest of consistency, ORA and Cal Water now agree that 2002 is the only unambiguous recorded year for charges to these three accounts and recommend use of a 2002 base year for estimating 2003 and 2004 test year expense. The combined cost of these expenses is $2,070,000 in 2002, compared to $1,675,800 in ORA's report and $2,344,700 as recommended in Cal Water's rebuttal.

3.22 ORA originally recommended that regulatory commission expenses should be $94,100 in 2003 and $93,600 in 2004 based on an average of past expenses. Cal Water explained that its regulatory burden has changed with new state law requiring rate case filings every three years and other Commission activities. After discussion during settlement, and considering 2002 and 2003-to-date expenses, the parties agree to recommend $191,000 as a 2002 base, escalated for inflation in the test years.

3.23 ORA originally estimated property insurance based on Cal Water's current costs. However, this is an area of synergy savings and the savings of $76,000 are re flected elsewhere in the summary of earnings. Therefore, to avoid double-crediting synergies, the parties agree to add $76,000 to ORA's estimate of property insurance.

3.30 General Office Rate Base

3.31 The parties had numerous disputes within the general office 2003 capital budget that resulted in aggregate estimates of $7,199,000 for Cal Water and $3,923,758 for ORA. Both the Cal Water and ORA amounts include 2002 deferred items. Rather than litigate or settle each individual item, which the parties thought would unnecessarily use hearing time, they agreed to consider the General Office capital budget as a whole package. Both parties discussed the positions of each party on capital items as well as the ability of Cal Water to implement such a large capital expenditure program so late in 20034. Therefore, the parties agreed to capital expenditures of $4.5 million in 2003 to be used on the projects Cal Water determines are most critical in this budget year. This estimate represents a $576,000 increase over ORA's estimate and a $590,000 decrease from Cal Water's 2003 budget.

3.32 Similarly, after discussing the merits of each party's position on specific 2004 General Office capital improvements, the parties agree to use ORA's recommended capital budget of $3,665,080 with one addition noted below. The 2004 capital budget includes projects described above that have cost savings calculated in General Office expenses.

3.33 In addition to ORA's recommended 2004 General Office capital budget, Cal Water provided substantial additional information on rebuttal for project 9561 for the upgrade of the PeopleSoft CIS system. Cal Water explained the critical need for this project, and after review, reduced its estimate of the project cost from $1.6 million to $1.3 million. Based on the new information and the revised estimate, ORA agrees to recommend approval of this project. Parties agree to plant additions in 2004 of $4.966 million reflecting ORA's 2004 additions with the inclusion of the PeopleSoft CIS project at Cal Water's revised cost of $1.3 million.

3.34 In all other respects, Cal Water agrees to ORA's recommendations on general office.

3.40. G.O. Allocation

3.41. ORA and Cal Water initially disagreed on the allocation percentage of general office expenses and rate base to Dominguez district. Cal Water had used a four factor analysis modified to reflect the historic allocations of Dominguez to its outlying districts in Kern River Valley, Antelope Valley, and Redwood Valley. ORA used a four-factor formula without this modification. Subsequent to Cal Water's filing in this case, the Commission issued D.03-10-005, which approved the modified four-factor for Kern River Valley and Antelope Valley.  The parties believe that the eventual decision in A.02-11-020 for Redwood Valley will use the same method. Therefore, to be consistent, the parties agree to use a 10.0% general office allocation for Dominguez-South Bay, which is the result of the same method used in the other cases.

4.00 Synergies

4.01 Synergies resulting from the merger of Cal Water and Dominguez Water approved in D.00-05-047 are annual expense savings used primarily to offset merger-related rate base write-ups. Under that decision, Cal Water is allowed to include an acquisition adjustment in its rate base as long as the revenue requirement is offset by equivalent cost savings. Also, any cost savings over $3,000,000 annually should be credited 10% to the ratepayers of all Cal Water's districts. The parties are in general agreement on these issues. ORA agreed for this rate case to Cal Water's estimate of district operating and general office synergies. Furthermore, ORA and Cal Water agreed that the merged entity should have a 1.53% lower cost of capital (including taxes) than Dominguez would have on a standalone basis. The parties disagreed on the rate base applicable to this lower cost of capital, but have since agreed on this figure as part of the settlement of district rate base.

4.02 Also initially, the parties disagreed whether Dominguez should be credited with avoided rate base of $1.2 million due to not renovating its offices and not replacing an elevated tank. Because of the uncertainty over the Commission's disposition of the combined Dominguez office building and transfer of property, the parties now agree that this issue should be deferred for consideration in the 2005 rate case filing. Therefore, for this rate case only, Cal Water agrees to ORA's estimate of no avoided rate base.

4.03 Finally, the parties initially disagreed over including in the synergy calculation an amount for the present value of future financial synergies. These are savings in the 30-year period from 2000 to 2030 of 1.53% on future incremental rate base in the Dominguez-South Bay district. The parties now agree that any consideration of future financial synergies should not be applied in this rate case. The 2005 rate case filing will present the final opportunity for Cal Water to demonstrate synergies and book an acquisition adjustment into rate base. Accordingly, the parties agree that future financial synergies may be considered as part of that final examination. At this time, no calculation of future savings is necessary because the rate base is estimated for the test years and the appropriate credit has been applied to this rate base

5.0 Other Issues

5.1 Rate of Return

The parties agree that the rate of return (ROR) shall be 8.6% for all years 2003 through 2006. In its Application, Cal Water requested rates of return 9.36%, 9.33%, 9.34% and 9.38% while ORA recommended rates of return of 8.07%, 7.98%, 7.99% and 8.03%. Since the filing of its Application, Cal Water has completed its anticipated 2003 bond placements and interest rates and associated issuance costs were higher than originally anticipated by the parties. Cal Water has also been able to refinance outstanding indebtedness at more favorable rates than in its last GRC. The net effect of these adjustments resulted in ORA's recommended rates or return of rising to 8.17%, 8.15%, 8.15% and 8.15%.

After reviewing recent rates of return authorized by the Commission for Class A water utilities (including Cal Water's last authorized ROR, authorized in September 2003), the parties determined that all authorized ROR's are higher than 8.6%.

Given the recent authorized ROR's as well as Cal Water's ability to issue long-term debt at a lower rate than in the past, the parties agreed that 8.6% ROR for the test and attrition years would be reasonable.

5.2 Oroville Balancing Accounts

Cal Water's balancing accounts in Oroville were closed as a result of a settlement in D.98-07-090. In exchange for losing balancing account protection, Cal Water was allowed to file for CPI increases in Oroville in 1999, 2000, 2001, 2002, and 2003. ORA and Cal Water agree that because this process is no longer in effect, the conditions for closing the balancing accounts no longer exist. The parties agree the Commission should reauthorize balancing and memorandum accounts for Oroville.

5.3 Butte County Purchased Water in Oroville

ORA and Cal Water agree that there is some long-term uncertainty over the PG&E purchased water supply in Oroville. ORA commented in its report that it believed Cal Water had not acted aggressively enough with PG&E to return its water supply to full capacity. Cal Water presented arguments in the settlement discussions that its limited efforts to improve the supply are in the interests of the ratepayers, as they benefit from the relatively low current cost of the contract as compared to other available supplies. The parties now agree it is beneficial to continue with the current raw water supplies through the rate case cycle. However, the current situation involves Cal Water taking PG&E's raw water supplies through natural streams and other ditches. There are inherent risks from environmental regulations as well as possible additional physical failures. Cal Water has identified the State Water Project (through a contract with Butte County) as the next best source of water. Because traditional balancing accounts do not take into account the mix of sources, any change from PG&E's supply to Butte County supplies would not be recoverable in the balancing account or offset process. Therefore, in recognition that continued use of PG&E water at current contract rates is a benefit to ratepayers, ORA agrees that Cal Water should be allowed to file an expense offset rate increase to take into account changes in purchased water from Butte County. The parties agree that Cal Water should not be allowed to file an advice letter until annual expenses increase by at least $10,000.

5.4 Cal Water in its application requested a ruling from the Commission that its water service meets all applicable standards. ORA in its reports agreed with Cal Water that it meets those standards. Therefore the parties jointly recommend the Commission make this finding.

6.0 EXECUTION OF THE AGREEMENT

6.1 The Parties agree, without further consideration, to execute and/or cause to be executed, any other documents and to take any other action as may be necessary, to effectively consummate this Settlement Agreement. The Parties shall take no action in opposition to this Settlement.

6.2 The Parties agree that no signatory to this Settlement or any member of ORA assumes any personal liability as a result of their agreement. The Parties agree that no legal action may be brought by any Party in any state or federal court, or any other forum, against any individual signatory representing the interests of ORA, attorneys representing ORA, or the ORA itself related to this Settlement. All rights and remedies of the Parities are limited to those available before the Commission.

6.3 This Settlement Agreement may be executed in any number of counterparts and by different Parties in separate counterparts, with the same effect as if all the Parties had signed one and the same document. All such counterparts shall be deemed to be an original and shall together constitute one and the same Agreement.

6.4 The undersigned acknowledge that they have been duly authorized to execute this Agreement on behalf of their respective principals and that such execution is made within the course and scope of their respective agency and/or employment.

7.0 GOVERNING LAW

7.1 The Parties acknowledge that unless expressly and specifically stated otherwise herein, the California Public Utilities Code, Commission regulations, orders, rulings, and/or decisions shall govern the interpretation and enforcement of this Agreement.

8.0 VERIFICATION

8.1 The signatories to this Settlement personally and independently verify that all elements of it are true, correct, complete, and internally consistent.

OFFICE OF RATEPAYER ADVOCATES

By: /s/

Monique Steele

California Public Utilities Commission

505 Van Ness Avenue

San Francisco, CA 94102

(415) 703- 2913

CALIFORNIA WATER SERVICE COMPANY

By: /s/

Thomas F. Smegal

California Water Service Company

1720 N. First Street

San Jose, CA 95112

(408) 367-8225

LEONA VALLEY CHERRY GROWERS ASSOCIATION

By: /s/

Jack L. Chacanaca

Leona Valley Cherry Growers Association

9300 Leona Avenue

Leona Valley, CA

(760) 373-3284

/s/

JEFFREY YOUNG

473 Woodley Place

Santa Rosa, CA

(707) 538-7031

(END OF ATTACHMENT A)

1.0 GENERAL

1.01 After filing the settlement in A. 03-01-034, the parties discovered two additional areas of agreement that needed to be included in settlements presented to the Commission. ORA and Cal Water are agreeing to these terms as an addition, and in one place a correction, to the previous settlement.

1.02 The additional settlement issues do not relate to the areas of involvement of the intervenors Leona Valley Cherry Growers Association and Jeffrey Young. Nevertheless, ORA and Cal Water have informed the intervenors of the additional terms. Both intervenors expressed no objection to the additional settlement.

2.0 PURCHASED WATER MIX IN DOMINGUEZ-SOUTH BAY

2.01 ORA and Cal Water originally proposed a change in the mix of purchased and pumped water in the Dominguez district between 2003 and 2004. Both parties recognize that due to capital budget delays, the projects to improve Dominguez' pumping capacity have been delayed. In another section of the settlement, the parties agree to recommend Cal Water file rate base offset advice letters when these projects (two new wells and three wellhead treatment plants) are placed in service. Therefore, the parties agree that the production mix should remain at the agreed-upon 2003 level for 2004. When any of the wellhead treatment plants or new wells is placed into service, Cal Water shall include in its advice letter request a change in expenses related to the new aggregate pumping capacity of wells in the system. Such change shall include increased pumping cost, decreased purchased water, and decreased credit for lease of water rights. The parties make this agreement because it will more accurately reflect the actual cost of service in the Dominguez district.

3.0 ATTRITION EARNINGS TEST

3.01 ORA originally proposed an attrition earnings test mechanism using the existing 1985 procedure, but with a modification to use recorded water sales in all classes. The existing 1985 procedure, uses adopted sales with a weather adjustment. During settlement, the parties agreed to use the method adopted in their joint recommendations in D.03-09-021 (Paragraph 5.06 of the joint recommendations). Thus, the parties agree the Commission should authorize step and attrition increases for Cal Water's districts in this proceeding based on recorded earnings for the latest 12 months ending September 30 each year. Additionally, the recorded earnings test should be adjusted to exclude expenses subject to balancing or memorandum account recovery. Moreover, the sales and sales related expenses in the recorded earnings test should be adjusted to exclude revenues credited to balancing and memorandum accounts. The table of weather coefficients will be filed with the other comparison tables on November 17, 2003. In accordance with the Commission's policy for approving step and attrition increases, should Cal Water's earnings, based on the recorded test above, exceed its authorized return, the requested step or attrition increase should be reduced to offset the earnings in excess of its authorized return in this proceeding or in any other future Cal Water proceeding, whichever is lower.

4.0 CORRECTION

4.01 The parties agree to modify the general office allocation for Dominguez to be 9.85%. The figure of 10.00% in paragraph 3.41 was incorrect.

5.0 EXECUTION OF THE AGREEMENT

5.1 The Parties agree, without further consideration, to execute and/or cause to be executed, any other documents and to take any other action as may be necessary, to effectively consummate this Settlement Agreement. The Parties shall take no action in opposition to this Settlement.

5.2 The Parties agree that no signatory to this Settlement or any member of ORA assumes any personal liability as a result of their agreement. The Parties agree that no legal action may be brought by any Party in any state or federal court, or any other forum, against any individual signatory representing the interests of ORA, attorneys representing ORA, or the ORA itself related to this Settlement. All rights and remedies of the Parities are limited to those available before the Commission.

5.3 This Settlement Agreement may be executed in any number of counterparts and by different Parties in separate counterparts, with the same effect as if all the Parties had signed one and the same document. All such counterparts shall be deemed to be an original and shall together constitute one and the same Agreement.

5.4 The undersigned acknowledge that they have been duly authorized to execute this Agreement on behalf of their respective principals and that such execution is made within the course and scope of their respective agency and/or employment.

6.0 GOVERNING LAW

6.1 The Parties acknowledge that unless expressly and specifically stated otherwise herein, the California Public Utilities Code, Commission regulations, orders, rulings, and/or decisions shall govern the interpretation and enforcement of this Agreement.

7.0 VERIFICATION

7.1 The signatories to this Settlement personally and independently verify that all elements of it are true, correct, complete, and internally consistent.

Dated: October 27, 2003

OFFICE OF RATEPAYER ADVOCATES

By: /s/

Monique Steele

California Public Utilities Commission

505 Van Ness Avenue

San Francisco, CA 94102

(415) 703- 2913

CALIFORNIA WATER SERVICE COMPANY

By: /s/

Thomas F. Smegal

California Water Service Company

1720 N. First Street

San Jose, CA 95112

(408) 367-8225

(END OF ATTACHMENT B)

Table F - Weather Adjustment Coefficients for Attrition Earnings Test

Dominguez 63.15 degrees 11.72 inches

Residential 4.17 -1.29

Business 71.52 -12.90

Multi Family 33.21 -6.22

Public Authority 364.17 -60.34

Oroville 63.79 degrees 20.96 inches

Residential 4.14 -1.56

Business 2.13 -0.94

Multi Family none -9.2

Public Authority none -0.98

Palos Verdes 63.1 degrees 11.93 inches

Residential 7.36 -3.94

Business none -15.24

Multi Family none -6.17

Public Authority none -3.33

Selma 63.78 degrees 10.76 inches

Residential 6.03 -2.63

Business 15.89 -4.78

Multi Family 1.62 -50.67

Public Authority 22.89 -12.85

(END OF ATTACHMENT C)

Schedule No. DOM-1

Dominguez Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

RATES

Service Charge: Per Month

SPECIAL CONDITIONS

1. Due to an over-collection in the balancing account, a surcredit of $0.0510 per 100 cu.ft. of water used is to be applied to the quantity rates for twelve months beginning June 6, 2003, the effective date of AL 1545-A.

2. The rates approved by Advice Letter No. 1593-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

3. All bills are subject to the reimbursement fees set forth on Schedule Nos. UF and DHS-1.

Schedule No. DOM-RC-1

Dominguez Tariff Area

METERED RECYCLED WATER SERVICE

APPLICABILITY

Applicable to all metered recycled water service.

TERRITORY

RATES

Title 22 Water

Service Charge: Per Month

SPECIAL CONDITIONS

1. All bills are subject to the reimbursement fees set forth on Schedule Nos. UF and DHS-1.

2. Recycled water service refers to non-potable water that has been processed and treated by one of the following methods:

a. Title 22 Water refers to wastewater that has undergone tertiary treatment that meets recycled water use standards as established in Title 22 of the California Code of Regulations, Division 4 Environmental Health, Chapter 3 Reclamation Criteria, Articles 1 through 10.

b. R.O. Water refers to Title 22 Water that has further undergone reverse osmosis treatment to remove salts and dissolved solids.

c. Nitrified Water refers to Title 22 Water that has further undergone a biological treatment and processing for removal of ammonia.

3. A Recycled Water Memorandum Account has been established to track under/over collections associated with the purchase and sale of recycled water. This account will include all charges from West Basin Municipal Water District not included in the current recycled rate, as well as the lower cost of water derived from charges and billings under West Basin's declining block structure and the Company's declining block structure. West Basin Municipal Water District credits not credited directly to a customer will be credited to this account and will offset future rate increases for recycled water customers. This account will be reconciled at least annually on or about the date when West Basin Municipal Water District changes its rates.

4. The rates approved by Advice Letter No. 1593-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

Dominguez Tariff Area

Each of the following rate increases may be put into effect on January 1 of the year indicated by filing an advice letter to add the appropriate rate increase to the rates in effect at that time.

Schedule No. DOM-1

Service Charge: Per Month

Schedule No. DOM-RC-1

Service Charge: Per Month

Schedule No. OR-1

Oroville Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

RATES

Service Charge: Per Month

SPECIAL CONDITIONS

1. The rates approved by Advice Letter No. 1594-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

2. All bills are subject to the reimbursement fees set forth on Schedule Nos. UF and DHS-1.

Schedule No. OR-2R

Oroville Tariff Area

RESIDENTIAL FLAT RATE SERVICE

APPLICABILITY

Applicable to all flat rate residential water service.

TERRITORY

RATES

For a single-family residential unit, including premises Per service connection
having the following areas: per month

For each additional single-family residential unit on the same premises and served from the same service connection .................................................... $28.95 (R)

SPECIAL CONDITIONS

1. The above flat rates apply to service connections not larger than one inch in diameter.

2. All service not covered by the above classifications shall be furnished only on a metered basis.

3. For service covered by the above classifications, if the utility or the customer so elects, a meter shall be installed and service provided under Schedule No. OR-1, General Metered Service.

4. This Schedule is closed to all new connections as of January 20, 1992, the effective date of Tariff Sheet 4336-W.

5. The rates approved by Advice Letter No. 1594-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

6. All bills are subject to the reimbursement fee set forth on Schedule Nos. UF and DHS-1.

Schedule No. OR-3M

Oroville Tariff Area

IRRIGATION SERVICE

APPLICABILITY

TERRITORY

RATES

SPECIAL CONDITIONS

1. A miner's inch day is defined as the quantity of water equal to 1/40 of a cubic foot per second flowing continuously for a period of 24 hours.

2. The rates approved by Advice Letter No. 1594-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

3. All bills are subject to the reimbursement fees set forth on Schedule Nos. UF and DHS-1.

Schedule No. OR-2UL

Oroville Tariff Area

LIMITED FLAT RATE SERVICE

APPLICABILITY

TERRITORY

RATES

SPECIAL CONDITIONS

1. Service under this schedule is limited to the above service, which was being furnished as of January 1, 1955.

2. The rates approved by Advice Letter No. 1594-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

3. All bills are subject to the reimbursement fees set forth on Schedule Nos. UF and DHS-1.

Oroville Tariff Area

Each of the following rate increases may be put into effect on January 1 of the year indicated by filing an advice letter to add the appropriate rate increase to the rates in effect at that time.

Schedule No. OR-1

Schedule No. OR-2R

Service Charge: Per Month

For each additional single-family residential unit on the same premises and served from the same service connection ............................. $ 0.55 0.50 0.55

Schedule No. OR-3M

Quantity Charge: Per Miner's Inch Day

Schedule No. OR-2UL

Service Charge: Per Month

Schedule No. PV-1

Palos Verdes Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

RATES

Service Charge: Per Month

SPECIAL CONDITIONS

1. Due to an over-collection in the balancing account, a surcredit of $0.0510 per 100 cu.ft. of water used is to be applied to the quantity rates for twelve months beginning June 6, 2003, the effective date of AL 1545-A.

2. The rates approved by Advice Letter No. 1593-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

3. All bills are subject to the reimbursement fees set forth on Schedule Nos. UF and DHS-1.

Palos Verdes Tariff Area

Each of the following rate increases may be put into effect on January 1 of the year indicated by filing an advice letter to add the appropriate rate increase to the rates in effect at that time.

Schedule No. PV-1

Service Charge: Per Month

Schedule No. SL-1

Selma Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

RATES

Service Charge: Per Month

SPECIAL CONDITIONS

1. Due to the under-collection in the balancing account, a surcharge of $0.0303 per 100 cu. ft. of water used is to be applied to the quantity rates for 24 months from May 13, 2003, the effective date of Advice Letter No. 1533.

2. New service connections may be subject to a facilities fee as detailed under Rule 15.

3. The rates approved by Advice Letter No. 1595-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

4. All bills are subject to the reimbursement fee set forth on Schedule Nos. UF and DHS-1.

Schedule No. SL-2R

Selma Tariff Area

RESIDENTIAL FLAT RATE SERVICE

APPLICABILITY

Applicable to all flat rate residential water service.

TERRITORY

RATES

For a single-family residential unit, including premises Per service connection
having the following areas: per month

For each additional single-family residential unit on the same premises and served from
the same service connection ........................................................ $17.60 (I)

SPECIAL CONDITIONS

1. Due to the under-collection in the balancing account, a surcharge of $1.0678 per service connection will be applied to each bill for 24 months from May 13, 2003, the effective date of Advice Letter No. 1533.

2. The above flat rates apply to service connections not larger than one inch in diameter.

3. All service not covered by the above classifications shall be furnished only on a metered basis.

4. For service covered by the above classifications, if the utility or the customer so elects, a meter shall be installed and service provided under Schedule No. SL-1, General Metered Service.

5. This Schedule is closed to all new connections as of January 20, 1992, the effective date of Tariff Sheet 4338-W.

6. The rates approved by Advice Letter No. 1595-A are subject to refund and may be adjusted depending on the final rates granted in A. 03-01-034 back to October 30, 2003.

7. All bills are subject to the reimbursement fee set forth on Schedule No. UF and DHS-1.

Selma Tariff Area

Each of the following rate increases may be put into effect on January 1 of the year indicated by filing an advice letter to add the appropriate rate increase to the rates in effect at that time.

Schedule No. SL-1

Service Charge: Per Month

Schedule No. SL-2R

Service Charge: Per Month

For each additional single-family residential unit on the same premises and served from
the same service connection ........................ $ 0.15 0.15 0.15

(END OF ATTACHMENT D)

1 Leona Valley Cherry Growers Association, and Jeffrey Young agree only to those provisions of the settlement applicable to the cost of capital as it affects the Antelope Valley (A.02-11-021) and Redwood Valley (A.02-11-020) rate cases. 2 The Dominguez-South Bay district was incorporated into Cal Water's operation as a result of D. 00-05-047. Previous rate cases for this district did not use the same weather variables and data is not available prior to 1992. 3 The Commission approved D.03-09-021 in September, increasing Cal Water's revenues by approximately 12.8 million annually. Also, the Commission approved resolutions authorizing recovery of approximately 4.7 million in balancing account surcharges. 4 Cal Water had expended approximately $2.7 million on General Office capital projects through August.

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