18. Assignment of Proceedings

Dian M. Grueneich is the Assigned Commissioner and Douglas Long is the assigned ALJ in this proceeding. (See Rule 5(l).)

Findings of Fact

1. Apple Valley, a water public utility under context of Pub. Util. Code § 216, is subject to the jurisdiction, control, and regulation of this Commission.

2. Apple Valley is a wholly owned subsidiary of Park, and provides public utility water service in and adjacent to the Town of Apple Valley.

3. The rate case plan for Class A water companies, D.04-06-018, adopted the "Estimates of Non-Labor and Wage Escalation Rates," the "Summary of Compensation per Hour," and for any item that may not be covered by these factors, the most recent 12-month "US Cities CPI-U" to escalate recorded cost trends in the test year. These data are published by ORA. It is reasonable to use these most recent factors to forecast Test Year 2006.

4. It is reasonable to adopt the uncontested forecast capital structure of 42.33% debt and 57.67% equity for all three years, 2006 - 2008, and the uncontested weighted average cost of debt of 8.49%, 8.41% and 8.35%, respectively.

5. Apple Valley has not demonstrated that its risk profile warrants a 90 basis point adder to the otherwise reasonable range for return on equity in the test year and escalation years. Apple Valley has not demonstrated that the return comparisons for natural gas distribution utilities are probative of the appropriate return on equity for a Class-A water utility.

6. ORA stipulated to an updated and corrected calculation of its recommendation of 9.85% return on equity. With a 30-point adder the 10.15% return on equity is 13 points above the recent settled average of 10.02%.

7. Apple Valley justified an increase in plant in service for 2006 and 2007 of approximately $5.7 million and $6.094 million, respectively.

8. Rule 15, Main Extensions, allows Apple Valley to charge developers or other new customers a fee to reimburse the cost of extending service from the existing system. Depending on the circumstances, these fees may be either a non-refundable contribution to Apple Valley or a refundable advance subject to certain conditions. Wells are not specifically included in the list of facilities itemized in Rule 15.

9. Apple Valley and ORA stipulated to a 75/25 split of the costs for these new wells between new customers and existing customers. Under the stipulation 75% of the costs will only be recovered by a facilities charge on developments of five of or more connections and only 25% will be included in rate base. The stipulation is a reasonable allocation of the costs and benefits between new and existing customers. It is also reasonable to require Apple Valley to monitor all new connections and count all connections by an individual or entity within an 18-month period against the five-unit exemption.

10. Apple Valley and ORA stipulated to installing an average of 80 new standpipes during 2005 - 2007 (and the associated revenue requirement) to enhance system reliability and safety.

11. Apple Valley should refund the revenue requirement of any uninstalled standpipes. The refund should be reflected as a reduction of revenue requirements in its next rate case.

12. Depreciation expense is reasonably included in the working cash study as calculated using Standard Practice U-16. D.04-09-061 does not contain findings or conclusions of law to support ORA's interpretation that the Commission intended to modify its longstanding practice and exclude depreciation expense from the working cash calculation.

13. Apple Valley updated its record period to use a five-year average for 2000 - 2004. This is consistent with the intention of the rate case plan.

14. An estimated $2.27 monthly reallocation to non-recipients for a $5 monthly low-income ratepayer benefit is consistent with the San Gabriel low-income ratepayer assistance program authorized in D.05-05-015 that reallocated $2.32 per month to non-recipients for a $4.88 benefit.

15. By establishing a CARW Revenue Reallocation Balancing Account and a CAWR Implementation Cost Memorandum Account, Apple Valley will have a reasonable opportunity to recover the actual amount of discounts received by CARW customers and insure that non-recipient customers do not over- or under-compensate Apple Valley for its actual costs to implement and maintain the program. A revenue balancing account, adjusted annually, is reasonable to recover the actual costs of the $5 per month discount given to eligible customers. An expense memorandum account is appropriate for the uncertain reasonable costs to implement the program. A reasonableness review in the next general rate case will ensure that Apple Valley prudently manages the costs of the program.

16. It is reasonable for Apple Valley to apply the annual income limitations as published annually by the Commission's Energy Division in compliance with Resolution E-3524.

17. With the available data, the use of dummy variables provided a reasonable sale forecast for Apple Valley's Test Year 2006.

18. Based upon the 2004 - 2005 policy-year, and as adjusted by the insurance broker's forecast, Apple Valley reasonably forecast insurance costs for 2006 for its utility and main office operations.

19. Apple Valley did not meet its burden of proof to justify continuing the proposed gravity feed service rates. ORA made a best efforts calculation of a cost of service for gravity feed service of $0.655/Ccf and a revenue requirement of $226,115.

20. There was no persuasive evidence that Apple Valley faces a credible risk of uneconomic bypass that would justify a bypass avoidance rate below marginal cost.

21. Apple Valley does not face uneconomic bypass by its gravity feed service customer and cannot offer service below cost.

22. It is reasonable to expect a prudent manager to consider possible improvements to the system and make low-cost and no cost improvements. Apple Valley should include a full and complete up-date of the information in Ex. 15 in its next general rate case.

23. Apple Valley demonstrated that its current maintenance of pumping efficiency is reasonable. Apple Valley should examine its pumping operations on an ongoing basis so that in its next general rate case it can support its overall economic efficiency by proposing those expenditures that provide the greatest long-run benefit to the company and its customers.

24. Apple Valley is in compliance with the Infrastructure Act and reported the removal of three land parcels from rate base.

25. Apple Valley demonstrated that it has back-up generators to augment pumping, and they are only incidentally available in the event of infrequent electric service disruptions.

Conclusions of Law

1. Apple Valley's rates as modified and authorized today are reasonable.

2. In order to provide fair and equitable rate treatment for existing customers it is reasonable to exclude from rate base the costs of new wells that are necessary to serve new customers, since their inclusion in rate base would require existing customers to subsidize the connection of new customers.

3. Apple Valley should impose on an individual or corporation or other entity a fee per connection, for five or more new connections in an 18-month period, to pay for new facilities necessary to provide service.

4. Apple Valley should refund the revenue requirement impact per water standpipe for any unspent revenue requirement intended to be used to install 240 standpipes in 2005 through 2007.

5. Apple Valley's working cash calculation was made in conformance with Standard Practice U-16.

6. Apple Valley should establish a low-income ratepayer assistance program, known as CARW, as contemplated by Pub. Util. Code § 739.8.

7. It is necessary and reasonable and within our authority under §§ 701 and 739.8 to establish a CAWR Revenue Reallocation Balancing Account and a CAWR Implementation Cost Memorandum Account to track and recover the reasonable costs of a low-income ratepayer assistance program.

8. Today's decision should be made effective immediately.

ORDER

IT IS ORDERED that:

1. Apple Valley Ranchos Water Company (Apple Valley) is authorized to file by advice letter the revised schedules attached to this order as Appendices A - D, and to concurrently cancel its present schedules for such service. This filing shall comply with General Order (GO) 96 and be approved by the Commission's Water Branch. The effective date of the revised schedule shall be January 1, 2006 and apply only to service rendered on or after this effective date.

2. Apple Valley shall file an advice letter to modify its Rule 15 to add a special facilities fee as discussed in this decision. The fee shall apply to every connection by all individuals or entities that apply for more than five connections in an 18-month period.

3. If Apple Valley installs less than 240 new standpipes in the three-year period 2005 though 2007, it shall refund to ratepayers the revenue requirement impact for each shortfall in standpipes based upon an average cost of $2,050 per standpipe. The refund shall be a reduction to the revenue requirement in Apple Valley's next general rate case.

4. Apple Valley shall establish a low-incomes ratepayer assistance program, known as California Alternative Rates for Water (CARW), in conformance with Pub. Util. Code § 739.8. As authorized in this decision, Apple Valley shall file a tariff for CARW by advice letter.

5. Apple Valley shall establish by advice letter a CARW Revenue Reallocation Balancing Account to recover the differential in revenues for actual low-income assistance discounts. Apple Valley may recover the balance as a revenue adjustment in its 2007 and 2008 escalation year advice letter filings as a revenue adjustment.

6. Apple Valley shall establish by advice letter a CARW Implementation Cost Memorandum Account to recover its reasonable costs to implement the CARW program. Apple Valley shall include the memorandum account balance for recovery in its next general rate case.

7. Apple Valley shall develop a customer information program, subject to approval by the Commission's Public Advisor, to inform ratepayers of the CAWR low-income assistance program. Apple Valley shall inform all customers of the program in every billing cycle for the first 12 months following the effective date of this decision.

8. Apple Valley shall include a full and complete up-date of the information on unaccounted for water in its next general rate case.

9. Apple Valley shall include in its next general rate case a complete report on any items in the 2006 rate base that are no longer deemed used and useful.

10. Apple Valley shall include a full and complete up-date of the information on back-up generators in its next general rate case.

11. Wherever Apple Valley is directed in this decision, the rate case plan, or by the Commissions rules and practices, to include an item in its next general rate case, that item must be disclosed in the application and discussed in prepared testimony, as appropriate. Apple Valley cannot comply by including the materials exclusively in work papers.

12. Application 05-02-005 is closed.

This order is effective today.

Dated December 15, 2005, at San Francisco, California.

(END OF APPENDIX A)

APPENDIX B

Page 1 of 8

APPLE VALLEY RANCHOS WATER COMPANY

Schedule No. 1

GENERAL METERED SERVICE

APPLICABILITY

TERRITORY

RATES

Per 100 cu. ft. $ 1.511

Service Charge:

For 5/8 x 3/4-inch meter $ 20.70

For 3/4-inch meter 31.05

For 1-inch meter 51.75

For 1 1/2-inch meter 103.50

For 2-inch meter 165.60

For 3-inch meter 310.50

For 4-inch meter 517.50

For 6-inch meter 1,035.00

For 8-inch meter 1,656.00

For 10-inch meter 2,380.50

The Service Charge is a readiness-to-serve charge which is applicable to all metered service and to which is to be added the bimonthly charge computed at the Quantity Rates.

SPECIAL CONDITIONS

1. A late charge will be imposed per Schedule LC.

2. In accordance with Section 2714 of the Public Utilities Code, if a tenant in a rental unit leaves owing the company, service to subsequent tenants in that unit will, at the company's option, be furnished on the account of the landlord or property owner.

3. A surcharge of $1.00 per month will be added to each customer's water bill in order to implement the low-income program as set forth in Schedule No. CARW. This surcharge will be in effect for a 12-month period starting with the effective date of this tariff.

4. All bills are subject to the Public Utilities Commission Reimbursement Fee set forth on Schedule No. UF.

APPENDIX B

Page 2 of 8

APPLE VALLEY RANCHOS WATER COMPANY

Schedule No. 2

GRAVITY IRRIGATION SERVICE

APPLICABILITY

Applicable to all water service from the Company's gravity irrigation system.

TERRITORY

Within the entire service area of the Company.

RATES

Quantity Rate:

Per 100 cu. ft. $ 0.665

Service Charge:

For 5/8 x 3/4-inch meter $ 20.70

For 3/4-inch meter 31.05

For 1-inch meter 51.75

For 1 1/2-inch meter 103.50

For 2-inch meter 165.60

For 3-inch meter 310.50

For 4-inch meter 517.50

For 6-inch meter 1,035.00

For 8-inch meter 1,656.00

For 10-inch meter 2,380.50

SPECIAL CONDITIONS

1. Service under this schedule is limited to lands not developed for residential use.

2. All outlets for this water shall be protected by signs stating: NON-POTABLE WATER - NOT FOR HUMAN CONSUMPTION.

3. A late charge will be imposed per Schedule No. LC.

4. All bills are subject to the Public Utilities Commission Reimbursement Fee set forth on Schedule #UF.

APPENDIX B

Page 3 of 8

APPLE VALLEY RANCHOS WATER COMPANY

Schedule No. 4

NON-METERED FIRE SERVICE

APPLICABILITY

Applicable only for water service to privately owned fire hydrants and fire sprinkler systems where water is to be used only for the purpose of fire suppression or for periodic system testing.

TERRITORY

Town of Apple Valley and vicinity, San Bernardino County.

RATES

Size of Service Per Month

2-inch $ 24.15

3-inch 36.20

4-inch 48.20

6-inch 72.25

8-inch 96.35

10-inch 116.35

SPECIAL CONDITIONS

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

2. The minimum diameter for fire protection service shall be two (2) inches, and the maximum diameter shall be not more than the diameter of the main to which the service is connected.

3. If a 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 main of adequate capacity shall be installed by the utility and the cost paid by the applicant. Such payment shall not be subject to refund.

APPENDIX B

Page 4 of 8

APPLE VALLEY RANCHOS WATER COMPANY

NON-METERED FIRE SERVICE

(Continued)

4. Service hereunder is for private fire systems which are regularly inspected by the local fire protection agency having jurisdiction and to which no connections for other than fire suppression purposes shall be made. Service shall be installed according to specifications of the utility and shall be maintained to the satisfaction of the utility. The utility will install the detector meter listed by the Underwriters Laboratories, Inc. or other device to indicate unauthorized use, leakage, or waste of water. The cost of such installation and the cost of the meter or other device shall be paid by the applicant.

5. The utility undertakes to supply water only at such pressures as may be available at any time through the normal operation of its system.

6. Any unauthorized use of water, other than for fire extinguishing purposes, shall be charged for at the regular established rate as set forth under Schedule No.1, and/or may be the grounds for the immediate disconnection of the service without liability to the Company.

7. A late charge will be imposed per Schedule No. LC.

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

APPENDIX B

Page 5 of 8

APPLE VALLEY RANCHOS WATER COMPANY

Schedule No. LC

LATE PAYMENT CHARGE

APPLICABILITY

Applicable to all service.

TERRITORY

Within the entire service area of the Company.

RATES

SPECIAL CONDITIONS

1. The balance is unpaid and subject to a late charge if the bill is Past-Due, or delinquent, as defined in Rule No. 11, Section B.1.a.

2. The late charge should be imposed only once on a delinquent bill since the account would be shut off before a subsequent bill and then subject to the reconnection fee as authorized by Tariff Rule No. 11.

3. All bills shall be subject to the reimbursement fee as set forth on Schedule No. UF.

APPENDIX B

Page 6 of 8

APPLE VALLEY RANCHOS WATER COMPANY

Schedule No. UF

SURCHARGE TO FUND

PUBLIC UTILITIES COMMISSION

REIMBURSEMENT FEE

APPLICABILITY

This surcharge applies to all water and sewer bills rendered under all tariff rate schedules authorized by the Commission, with the exception of resale rate schedules where the customer is a public utility.

TERRITORY

This schedule is applicable within the entire territory served by the utility.

RATES

A 1.4% (.014) surcharge shall be added to all customer bills.

In 1982, the Legislature established the Public Utilities Commission Reimbursement Fee to be paid by utilities to fund their regulation by the Commission (Public Utilities (PU) Code Section 401-443). The surcharge to recover the cost of that fee is ordered by the Commission under authority granted by the PU Code Section 433.

APPENDIX B

Page 7 of 8

SCHEDULE NO. CARW

CALIFORNIA ALTERNATIVE RATES FOR WATER

APPLICABILITY

TERRITORY

RATES

Quantity Rate:

SPECIAL CONDITIONS

1. CARW Household: A CARW Household is a household where the total gross income from all sources is less than shown on the table below based on the number of persons in the household. Total gross income shall include income from all sources, both taxable and non-taxable. Persons who are claimed as dependent on another person's income tax return are not eligible for this program. For households with more than six persons, add $5,800 annually for each additional person residing in the household.

APPENDIX B

Page 8 of 8

SCHEDULE NO. CARW

CALIFORNIA ALTERNATIVE RATES FOR WATER

(Continued)

2. Application and Eligibility Declaration: An application and eligibility declaration on a form authorized by the Commission is required for each request for service under this schedule. Renewal of a customer's eligibility declaration will be required every two years and may be required on an annual basis. Customers are only eligible to receive service under this rate schedule at one residential location at any one time, and the rate applies only to the customer's permanent primary residence. The schedule is not applicable where, in the opinion of the Utility, either the accommodation or the occupancy is transitory.

3. Commencement of Rate: Eligible customers shall be billed on this schedule commencing no later than one billing period after receipt and approval of the customer's application by the Utility.

4. Verification: Information provided by the applicant is subject to verification by the Utility. Proof of enrollment in the Southern California Edison CARE program will be accepted by the Utility as documentation of eligibility.

5. Notice from Customer: It is the customer's responsibility to notify the Utility if there is a change in the customer's eligibility status.

6. Customer may be re-billed for periods of ineligibility under the applicable rate schedule.

7. All bills are subject to the Public Utilities Commission Reimbursement Fee set forth on Schedule No. UF.

(END OF APPENDIX B)

(END OF APPENDIX C)

(END OF APPENDIX D)

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