Findings of Fact

1. The proposed additional washwater handling facilities are needed to provide safe drinking water and reliable water supply in accordance with the requirements of DHS.

2. The SDWSRF loan provides low-cost capital for the needed water system improvements and is a prudent means of acquiring the $1,660,250 debt capital.

3. With a state-funded and rate surcharge type of recovery, the utility or its shareholders do not personally benefit from the SDWSRF loan.

4. The DHS, responsible with the California Public Utilities Commission for the public health and safety of California residents, is best equipped to establish and enforce water treatment requirements.

5. SJWC will not be able to obtain the SDWSRF loan until SJWC demonstrates to DWR that the Commission has approved a rate surcharge in an amount necessary to project compliance with the terms and conditions of the loan.

6. DHS has approved SJWC's proposed project.

7. The proposed borrowing is for proper purposes.

8. SJWC's proposed surcharge for the SDWSRF loan would generate approximately $117,686 annually for the first ten years to repay the principal and interest on the loan, and to accumulate a 10% debt reserve and $106,986 from years ten to the end of the term.

9. The establishment of a reserve equal to two semi-annual loan payments is required by DWR administrative regulations.

10. The proposed surcharge rates for the first 10 years will increase the water rates by $0.03 per month for approximately 70.9% of SJWC's customers.

11. SJWC advanced the funds to construct the additional washwater handling facilities considering its importance to its water system and in the interest of being in compliance. The project is currently under construction.

12. The cost of the project is not included in SJWC's rates.

13. SJWC's senior note agreements prohibit any of SJWC's creditors from attaching liens to SJWC's property or assets without making effective provision securing all senior notes outstanding.

14. The securing of all senior notes outstanding would present an undue burden on SJWC.

15. DWR is agreeable to a stand-by letter of credit in lieu of a security interest in SJWC's assets.

16. Authorizing SJWC to secure a stand-by letter of credit as security for the loan is not adverse to the public interest.

17. The surcharge rates appearing on page 9 of this decision are based on the amount of the revenue requirement, meter size, and the number of customers.

18. The surcharge rates to be established to repay the loan should last as long as necessary to repay the loan. Surcharge revenues would not be commingled with other utility charges.

19. The utility plant financed by the loan should be permanently excluded from rate base for ratemaking purposes.

20. Special accounting requirements are necessary to ensure that there are no unintended windfalls to the utility shareholders. The surcharge rates should be adjusted periodically to reflect changes in the number of connections.

21. SJWC should review annually the surcharge rates and adjust as necessary, by the advice letter procedure, the surcharge rates to reflect changes resulting in overages and shortages in the bank account.

22. Vacant or undeveloped lots will benefit from the expenditures being made from the proceeds of the loan. The benefits include potentially increased property values and the availability of potable water furnished by a public utility, which meets health standards.

23. It is reasonable to establish a service fee for new connections pertaining to vacant or undeveloped lots since these lots will benefit from these improvements.

24. A maximum lump sum service fee of $2,000 payable upon connection by customers requesting future services to vacant or undeveloped lots is reasonable.

25. SJWC should pay the fee determined in accordance with Section 1904(b).

Conclusions of Law

1. This is a ratesetting proceeding.

2. A hearing is not necessary.

3. Approval of the SDWSRF loan for the construction of additional washwater handling facilities and approval of a customer surcharge to repay the loan is in the public interest and is otherwise proper pursuant to applicable provisions of the Pub. Util. Code.

4. SJWC should maintain adequate records to facilitate review of amounts expended and amounts drawn upon its income to pay for the cost of the project.

5. Refunding of short-term debt should comply with the provisions of § 823(d).

6. SJWC should pay the fee determined in accordance with § 1904(b). The amount subject to the fee is $1,660,250. The fee is determined as follows: ($2 x (1,000,000/1,000)) + ($1 x (660,250/1,000)) = $2,660.

7. Pursuant to § 1904(b), no fee need be paid on any portion of any issue that would be used to guarantee, take over, rend, discharge, or retire any evidence of indebtedness on which a fee has been paid to the Commission.

8. The following order should be effective on the date of signature.