9. Comments on Proposed Decision

The principal hearing officer's proposed decision was filed with the Commission and served on the parties in accordance with § 311(d) and Rule 77.1. SCWC filed comments on August 9, 2004. We have made minor computational corrections to Table 1, revised Table to 3 to represent the parties' positions at proposed rates rather than present rates, and corrected the errors identified in Attachment B, Appendices A and D. We have also corrected several minor, typographical errors. Because we adopt the parties' Settlement in its entirety, we see no need to include additional ordering paragraphs that separately approve select paragraphs of the Settlement and we decline to do so.

Findings of Fact

1. The all-party Settlement negotiated by SCWC and ORA resolves every issue between them in this proceeding.

2. SCWS and ORA are fairly reflective of the affected interests in this proceeding.

3. No term of the proposed Settlement contravenes statutory provisions or prior Commission decisions.

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

5. The proposed Settlement is unopposed.

6. The Settlement will mitigate rate shock for SCWC's recycled water customers; however, SCWC should provide more information on the relationship between potable and recycled water rates in its next GRC application for Metropolitan District.

7. There is insufficient reliable implementation data to require SCWC to place the California Alternative Rate for Water program in base rates during this GRC cycle.

8. The summaries of earnings presented in Attachment B, Appendix A; the quantities and calculations presented in Attachment B, Appendix D; and the four capital projects to be processed by advice letter, all based on the Settlement, are reasonable, justified, and sufficient for ratemaking purposes.

Conclusions of Law

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

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

3. The Settlement should be adopted.

4. The revised rates, step increases, and tariff rule revisions set forth in Attachment B, Appendices B, C and E, based on the Settlement, are justified.

5. This decision should be made effective immediately to enable SCWC to implement the Settlement without delay.

ORDER

IT IS ORDERED that:

1. The Joint Motion to Adopt Settlement between Southern California Water Company (SCWC) and the Office of Ratepayer Advocates (ORA) is granted. The Settlement and Stipulation (Settlement) attached to that motion and appended to this decision as Attachment A, is adopted. The ratemaking calculations and budgets, and the tariff revisions, all in Attachment B, are approved.

2. SCWC is authorized to file, in accordance with General Order (GO) 96-A, or its successor, and to make effective, on not less than five days' notice, tariffs containing the test year 2004 increases for Metropolitan District 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 2004 increases are effective, SCWC also is authorized to file, in accordance with GO 96-A, or its successor, and to make effective, on not less than five days' notice, tariffs containing the test year 2005 increases for Metropolitan District 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 2006 may be filed, in accordance with GO 96-A or its successor, no earlier than November 5 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 SCWC's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the change adopted to this pro forma test, if any, in R.03-09-005, the Rate Case Plan Rulemaking proceeding, for the 12 months ending September 30 of the preceding year exceeds (a) the rate of return found reasonable by the Commission for SCWC for the corresponding period in the most recent rate decision, or (b) 8.75%. The advice letters shall be reviewed by the Commission's Water Division for conformity with this decision including the applicable provisions of the Settlement and shall go into effect upon the Water Division's determination of compliance, not earlier than January 1 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. SCWC is authorized to file an advice letter to recover or refund, over no less than one year, the difference between the interim rates authorized pursuant to Advice Letter No. 1141-W, which was filed on February 9, 2004 and became effective on February 14, 2004, and the rates authorized in this decision. The advice letter filing shall include all supporting data and calculations. The Commission's Water Division shall inform the Commission if it finds the proposed rate change does not comply with this decision or other Commission requirements.

6. SCWC is authorized to file advice letters to include in rate base the reasonable capital costs, limited by the stipulated cost cap, of the four plant additions (Perham, Southwest CSA Office, Budlong, and Central District Office) enumerated in § 3.04 of the Settlement. Water Division shall use the factors described in § 3.04 in its review of each advice letter.

7. SCWC's next general rate case application for the Metropolitan District shall address:

(a) The impact of the revised recycled water rate design on the cost of reclaimed and potable water supplied to SCWC, in conformance with Section 6.4.3 of this decision; and

(b) The directives in Decision 00-06-075 regarding the California Alternative Rate for Water program, in conformance with Section 6.4.4 of this decision.

This order is effective today.

Dated August 19, 2004, at San Francisco, California.

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