Background

CalAm and its Former Citizens Districts

CalAm provides public utility water service to approximately 106,000 customers in various areas in San Diego, Los Angeles, Ventura and Monterey counties. In January 2002 CalAm acquired the water utility assets of Citizens Utilities Company of California, adding another 60,000 customers in four districts located in Sonoma, Santa Cruz, San Mateo, Sacramento and Placer Counties. This general rate case involves CalAm's four former Citizens districts: Sacramento, Larkfield, Felton and Montara.¹ CalAm is a California corporation and a wholly owned subsidiary of American Water Works Company, Inc., (AWW) which in January 2003 was acquired by RWE.

CalAm's Applications and the Proceeding

CalAm filed the applications on September 19, 2002,² and the Commission in Resolution ALJ 176-3096 preliminarily determined each to be a ratesetting proceeding expected to go to hearing. Assigned Administrative Law Judge (ALJ) James McVicar held a prehearing conference on November 20, 2002 at which he consolidated the four applications. Assigned Commissioner Carl Wood's December 3, 2002 scoping ruling confirmed the category and need for hearing, defined the issues, established a schedule, and designated ALJ McVicar as the principal hearing officer and thus the presiding officer. The ALJ conducted seven days of evidentiary hearing from April 21 through April 29, 2003. CalAm and the Commission's Office of Ratepayer Advocates (ORA) filed a motion on April 22 to adopt a partial settlement agreement, and filed an amended version of the motion and settlement on May 9. On April 28, 2003, MSD and County of Santa Cruz (Santa Cruz) filed a motion to suspend the proceeding. This decision addresses those pending motions.

After evidentiary hearings were completed, CalAm and MSD filed a joint motion for CalAm to withdraw A.02-09-033, the Montara district GRC, as a result of its pending divestiture to MSD, and for MSD to withdraw from the consolidated proceeding. No party objected. The motion is granted.

The proceeding was submitted effective November 21, 2003 by an ALJ ruling. MSD and Santa Cruz filed a timely Request for Final Oral Argument before the Commission, as permitted under the Commission's Rules of Practice and Procedure, Rule 8(d). Final oral argument was held on February 25, 2004.

CalAm's applications request the rate increases shown in Table 1 to compensate it for increased expenses and capital investment costs in excess of increased revenues over time. In addition, it seeks Commission approval of seven so-called Special Rate Requests (SRR) described in the Discussion section below. Some of the rate effects of CalAm's SRRs are not included in the Table 1 figures.

Table 1

Requested vs. Adopted Increases


	2003		2004
	$ (000)	%	$ (000)	%
Felton District
Application Requested	410.2	56.6	101.2	8.9
Adopted	254.7	34.6	70.8	7.1

Larkfield District
Application Requested	512.8	33.3	96.9	4.7
Adopted	327.7	21.1	58.2	3.1

Sacramento District
Application Requested	7,663.4	47.5	1,859.3	7.8
Adopted	5,487.2	33.9	816.0	3.7

Note: Excludes effects of proposed district consolidations and Felton district 2005 attrition year.

CalAm prepared its GRC request using an 11.00% return on common equity, which it estimated would produce 7.15% and 7.20% rates of return on rate base for test year (TY) 2003 and TY2004 and, for Felton and Montara districts only, 7.25% in an attrition year 2005.

¹ After evidentiary hearings were completed, CalAm and Montara Sanitary District (MSD) filed a joint motion for CalAm to withdraw A.02-09-033, the Montara district GRC, as a result of its pending divestiture to MSD, and for MSD to withdraw as a party from the consolidated proceeding. No party objected. This decision grants both requests. ² In Decision (D.) 01-09-057, the Commission ordered CalAm to make these GRC filings in January 2002. CalAm sought and obtained the Executive Director's approval of an extension under Rule 48(b) to delay filing its GRC Notices of Intent to March 2002. Those Notices of Intent were subsequently filed on June 28, 2002.