Conclusions of Law

1. Santa Cruz and Almquist's failure to file comments on the proposed settlement constitutes their waiver of all objections to it.

2. CalAm and ORA have tendered an uncontested partial settlement as defined in Rule 51(f)(2).

3. The settlement is reasonable in light of the whole record, consistent with law, and in the public interest.

4. The settlement should be adopted.

5. The revised rates and step increases set forth in Appendices B and C are justified.

6. CalAm should be authorized to implement the rate changes set forth in this order, except as to the Felton District. Felton District rates should be deferred into a balancing account until after a decision consistent with this decision on the consolidation of districts for ratemaking purposes.

7. Section 728 does not allow, and past Commission precedent does not support, the retroactive rate relief CalAm seeks in its December 18, 2003 motion.

8. CalAm's December 18, 2003 motion for retroactive rate relief should be denied.

9. For any Citizens districts for which there is no TY2005 general rate case, revenues for service rendered on and after January 1, 2005 that are associated with the Citizens acquisition synergies savings in those districts should be made subject to refund pending a determination of what portion of the synergies savings are to be shared with customers.

10. This decision should be made effective immediately to allow CalAm an opportunity to earn a reasonable return for its Citizens districts in TY2004.

ORDER

IT IS ORDERED that:

1. The joint motion of California-American Water Company (CalAm) and Montara Sanitary District for CalAm to withdraw Application (A.) 02-09-033 and Montara Sanitary District to withdraw from the consolidated proceeding is granted.

2. The amended settlement between CalAm and the Commission's Office of Ratepayer Advocates, Appendix F to this order, is adopted. Settlement Section 3, Montara District, shall be disregarded.

3. 3. CalAm's December 18, 2003 motion for retroactive rate relief is denied.

4. CalAm is authorized to file in accordance with General Order 96, and make effective on not less than five days' notice, the revised tariff schedules for 2003 included as Appendix B to this order for all districts except Felton. Felton district Rate Schedule No. FE-6M shall be canceled. The revised tariff schedules shall apply to service rendered on and after their effective date.

5. Consistent with the deferred step rate filing provisions adopted in Decision 02-12-068, on or after November 5, 2004, CalAm is authorized to file an advice letter in conformance with General Order 96, with appropriate supporting workpapers, requesting the 2004 step rate increases authorized in Appendix C to this order. If the rate of return on rate base for Sacramento or Larkfield district, taking into account the rates then in effect and normal ratemaking adjustments for the twelve months ending September 30, 2004, exceeds the lower of (a) the rate of return found reasonable by the Commission for any of those districts for the corresponding period in the most recent decision, or (b) the rate of return found reasonable in this order, then CalAm shall file for a lesser increase in that district. The requested rates shall be reviewed by the Commission's Water Division and shall go into effect after Water Division's determination that they conform to this order. Water Division shall inform the Commission if it finds that the proposed rates do not conform to this order or other Commission decisions. The revised tariff schedules shall be made effective no earlier than January 1, 2005, and shall apply to service rendered on and after their effective date.

6. For the Felton district, CalAm should establish a balancing account to track the difference between revenues produced by current rates and those that would arise from the difference between revenues generated by current rates, ignoring any modifications to current rates resulting from advice letter filings, and those set in Appendix B. Such calculations shall also change on January 1, 2005 consistent with the timing of changes in rates set forth in Appendix C. In addition, this balancing account will be exempt from the provisions of D.03-06-072, because the balance that arises from the difference between the continuation of adopted rates and the revenues that would be generated by the rates in Appendix B is reasonable. Step increases for the sake of these calculations shall proceed consistent with Ordering Paragraph 5, with the shortfall in the balancing account imputed as revenues.

7. The summaries of earnings presented in Appendix A, and the quantities and calculations included as Appendix D to this order which underlie them, are adopted.

8. CalAm is authorized to file an advice letter seeking Commission authorization to transfer to its Sacramento district rate base and offset in rates the reasonable expenses associated with the start up costs for surface water procurement from Placer County Water Agency and recorded in the memorandum account authorized by Resolution W-4001. CalAm may file the advice letter only after it has executed a contract with Sacramento Suburban Water District securing access to the water.

9. Within 60 days of the effective date of this decision, CalAm shall file an advice letter seeking Commission authorization to recover through a rate surcharge, or to refund through a rate surcredit if appropriate, the accumulated balances in its Sacramento district purchased power balancing account and purchased power memorandum account as of December 31, 2002. CalAm's request shall follow the procedures established in the Commission's Balancing Account Rulemaking Proceeding, Rulemaking 01-12-009.

10. For any Citizens districts for which there is no test year 2005 general rate case, revenues for service rendered on and after January 1, 2005 that are associated with the Citizens acquisition synergies savings in those districts are made subject to refund pending a determination of what portion of the synergies savings are to be shared with customers.

11. CalAm's requests in A.02-09-030, A.02-09-031, and A.02-09-032 are granted as set forth above, and in all other respects are denied.

12. CalAm shall file an application proposing consolidation of districts for the purpose of ratemaking within 90 days of adoption of this order. The filing shall address the consolidation issues identified herein. In addition, the filing should propose how to amortize the balances accrued in the balancing account set up for the Felton district pursuant to Ordering Paragraph 6.

11. A.02-09-030, A.02-09-031, and A.02-09-032 are closed. A.02-09-033 is dismissed.

This order is effective today.

Dated May 6, 2004, at San Francisco, California.

MICHAEL R. PEEVEY

President

GEOFFREY F. BROWN

SUSAN P. KENNEDY

LORETTA M. LYNCH

CARL W. WOOD

Commissioners

.

(END OF APPENDIX A)

California-American Water Company

Schedule No. FE-1

Felton Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

Felton and vicinity, Santa Cruz County.

RATES

Per Meter

Quantity Rates: Per Month

For all water delivered, per 100 cu.ft. $ 3.617 (I)

Per Meter Per Month Per Meter Per Month

Service charge SDWBA Surcharge 1/

For 5/8 x ¾-inch meter 24.86 (I) $ 11.50

For ¾-inch meter 37.30 (I) 17.26

For 1-inch meter 62.16 (I) 28.76

For 1½-inch meter 124.32 (I) 57.52

For 2-inch meter 198.92 (I) 92.03

For 3-inch meter 372.97 (I) 172.55

For 4-inch meter 621.62 (I) 287.59

The service charge is a readiness-to-serve charge which is applicable

to all metered service and to which is to be added the charge for water used

computed at the quantity rates.

Conservation Discount

The following conservation discounts will be applied to the service and

quantity charges.

Bi-Monthly Consumption Discount

0-10 CCFs 20.00%

11-20 CCFs 15.00%

21-30 CCFs 10.00%

Over 30 CCFs 0.00%

(Continued)

California-American Water Company

Schedule No. FE-1

Felton Tariff Area

GENERAL METERED SERVICE (continued)

Service Reestablishment Charge:

For each reestablishment of water service $ 4.10

SPECIAL CONDITIONS

1. The service reestablishment charge is in addition to the charges calculated in

accordance with this schedule and will be made each time an account is reopened

for a customer at the time water service is to be restored after discontinuance at

that customer's request.

2. All bills are subject to the reimbursement fee set forth on Schedule No. UF.

METERED SERVICE SURCHARGE 1/

NOTE:

This surcharge is in addition to the regular monthly metered water bill. The

total monthly surcharge must be identified on each bill. This surcharge is

specifically for the repayment of the California Safe Drinking Water Bond Act loan

as authorized by Decision 96-12-061.

California-American Water Company

Schedule No. FE-4

Felton Tariff Area

PRIVATE FIRE PROTECTION SERVICE

APPLICABILITY

Applicable to all water service furnished to privately owned fire protection purposes.

TERRITORY

Felton and vicinity, Santa Cruz County

RATES

Per Meter

Per Month

For each 4-inch connection, or smaller, $ 28.47 (I)

For each 6-inch connection................ 42.74 (I)

For each 8-inch connection................ 56.94 (I)

For each 10-inch connection.............. 114.21 (I)

For each 12-inch connection.............. 160.79 (I)

SPECIAL CONDITIONS

1. The customer will pay without refund the entire cost of installing the service connection.

2. The maximum diameter of the main to which the service is connected.

3. The customer's installation must be such as to effectively separate the fire sprinkler

system from that of the customer's regular water service. As a part of the sprinkler

service installation there shall be a detector check or other similar device

acceptable to the utility which will indicate the use of water. Any unauthorized use

will be charged for at the regular established rate for general metered service,

and/or may be grounds for the utility's discontinuing the fire sprinkler service without

liability to the utility.

(continued)

California-American Water Company

Schedule No. FE-4 (continued)

Felton Tariff Area

PRIVATE FIRE PROTECTION SERVICE

4. There shall be no cross-connection between the fire sprinklers system supplied

by water through the utility's fire sprinkler service to any other source of

supply without the specific approval of the utility. This specific approval will

require, at the customers expense, a special double check valve installation or

other device acceptable to the utility. Any such unauthorized cross-connection

may by the grounds for immediately discontinuing the sprinkler system without

liability to the utility.

5. The utility will supply only such water at such pressure as may be available

from time to time as a result of its normal operation of the system.

6. All bills are subject to the reimbursement fee set forth on Schedule No. U.F

California-American Water Company

Schedule No. LW-1

Larkfield Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

The unincorporated areas known as the Larkfield and Wikiup subdivisions and the community of Fulton, three miles north of Santa Rosa, Sonoma County.

RATES Per Meter

Per Month

Quantity Rate:

For all water delivered, per 100 cu.ft................................................ $ 2.607 (I)

Service Charge:

The service charge is a readiness-to-serve charge which is applicable to all metered service and to which is to be added the monthly charge computed at the quantity rates.

Special Conditions

1. All bills are subject to the reimbursement fee set forth in Schedule No. UF.

California-American Water Company

Schedule No. LW-4

Larkfield Tariff Area

PRIVATE FIRE PROTECTION SERVICE

APPLICABILITY

Applicable to all water service furnished for privately owned fire protection systems.

TERRITORY

Larkfield Estates and vicinity located approximately three miles north of the City of Santa Rosa, Sonoma County.

RATES Per Service

Per Month

Size of Service:

SPECIAL CONDITIONS

1. The fire protection service will be installed by the utility at the cost of the applicant. Such cost shall not be subject to refund.

2. If the distribution main of adequate size to serve a private fire protection system in addition to all other normal service does not exist in the street or alley adjacent to the premises to be served, then a service main from the nearest existing main of adequate capacity will be installed by the utility at the cost of the applicant. Such cost shall not be subject to refund.

3. Service hereunder is for private fire protection system to which no connections for other than fire protection purposes are allowed and which are regularly inspected by the underwriters having jurisdiction, are installed according to specifications of the utility, and are maintained to the satisfaction of the utility. The utility may install the standard detector type meter approved by the Board of Fire Underwriters for protection against theft, leakage or waste of water.

4. For water delivered for other than fire protection purposes, charges will

be made therefore under Schedule No.1, General Metered Service.

5. The utility will supply only such water at such pressure as may be available
from time to time as a result of its normal operation of the system.

6. All bills are subject to the reimbursement fee set forth in Schedule No. UF

California-American Water Company

Schedule No. SAC-1

Sacramento Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

The unincorporated communities, subdivisions, and adjacent areas generally known as

Cordova, Rosemont, Parkway Estates, Lindale, Foothill Farms, Arlington Heights, Linwood,

Loretto Heights, Arden Highlands, Arden Estates and Sunrise Security Park. A part of the City

of Citrus Heights and the communities of Antelope and Sabre City in Sacramento and Placer

counties. The city of Isleton and vicinity and the unincorporated community of Walnut Grove in

Sacramento County. The lower southwestern portion of Placer County including the areas

Known as Morgan Creek, Doyle Ranch, Sun Valley Oaks and Riolo Greens.

RATES Per Meter

Per Month

Quantity Rates:

For all water delivered per 100 cu. ft. $ .9412 (I)

Service Charge:

For 5/8 x ¾-inch meter $ 7.14 (R)

For ¾-inch meter 10.71 (I)

For 1-inch meter 17.85 (I)

For 1 1/2-inch meter 35.70 (I)

For 2-inch meter 57.13 (I)

For 3-inch meter 107.11 (I)

For 4-inch meter 178.52 (I)

For 6-inch meter 357.04 (I)

For 8-inch meter 571.26 (I)

For 10-inch meter 714.07 (I)

For 12-inch meter 821.19 (I)

The Service Charge is a readiness-to-serve charge which is applicable to all metered service

and to which is to be added the monthly charge computed at the Quantity Rates.

(Continued)

California-American Water Company

Schedule No. SAC-1

Sacramento Tariff Area

General Metered Service (continued)

SPECIAL CONDITIONS:

1. 1. All bills are subject to the reimbursement fee forth in Schedule No. UF.

2. 2. A surcharge is included on each bill to recover undercollected pumping power costs of $ 328,066.

The pumping power surcharge is $ .483 per customer on a monthly basis. This surcharge will be

collected over twelve-month period from the effective date of Advice Letter 578.

California-American Water Company

Schedule No. SAC-4

Sacramento Tariff Area

PRIVATE FIRE PROTECTION SERVICE

APPLICABILITY

Applicable to all water service rendered for private fire protection purposes.

TERRITORY

The unincorporated communities, subdivisions, and adjacent areas generally known

as Cordova, Rosemont, Parkway Estates, Lindale, Foothill Farms, Arlington Heights,

Linwood, Loretto Heights, Arden Highlands, Arden Estates, and Sunrise Security Park.

A part of the City of Citrus Heights and the communities of Antelope and Sabre City in

Sacramento and Placer Counties. The City of Isleton and vicinity and the

unincorporated community of Walnut Grove in Sacramento County. The lower

Southwestern portion of Placer County including the areas known as Morgan Creek,

Doyle Ranch, Sun Valley Oaks and Riolo Greens.

RATES

Per Meter

Per Month

For each 4-inch connection, or smaller, $ 26.91 (I)

For each 6-inch connection................ 44.82 (I)

For each 8-inch connection................ 63.11 (I)

For each 10-inch connection.............. 78.37 (I)

For each 12-inch connection.............. 112.36 (I)

SPECIAL CONDITIONS

1. The customer will pay without refund the entire cost of installing the service connection.

2. The maximum diameter of the service connection will not be more than the diameter of the

main to which the service is connected.

3. The customer's installation must be such as to effectively separate the fire sprinkler system

from that of the customer's regular water service. As a part of the sprinkler service installation

there shall be a detector check with by-pass meter or other similar device acceptable to the company

which will indicate the use of water. The utility may require a bi-annual test of the detector check

installation at customer cost as a condition of furnishing service. Any unauthorized use will be charged

for at the regular established rate for general metered service, and/or may be grounds for the

company's discontinuing the fire sprinkler service without liability to the company.

(Continued)

California-American Water Company

Schedule No. SAC-4 (Continued)

Sacramento Tariff Area

PRIVATE FIRE PROTECTION SERVICE

4. The company will supply only such water at such pressure as may be available from time

to time as the result of its normal operation of the system.

5. All bills are subject to the reimbursement fee set forth on Schedule No. UF.

6. A surcharge is included on each bill to recover undercollected pumping power costs of

$ 328,066. The pumping power surcharge is $ .483 per customer on a monthly basis. This surcharge will be collected over a twelve-month period from the effective date of Advice Letter 578.

California-American Water Company

Schedule No. SAC - 2R

Sacramento Tariff Area

RESIDENTIAL FLAT RATE SERVICE

APPLICABILITY

Applicable to all residential water service on a flat rate basis