V. Annual Use by Customer Class

A. Average Use per Customer

San Gabriel forecasts sales on a weather-normalized basis for most customer classes by applying the New Committee Method to recorded monthly sales over the last ten years. This forecast method was accepted by DRA. The actual average use per residential customer is 322.4 ccf/conn./yr.

B. Sales to Cemex and California Steel Industries

The only real disagreement over customer sales concerned San Gabriel's estimates of sales to two large customers in the large industrial class - California Steel Industries (CSI) and Cemex. A San Gabriel witness testified that he met with the plant manager and other management officials of Cemex to determine Cemex water needs over the next three years. Cemex said that its water use for the next three years would remain about the same as it has been in the recent past.

DRA's witness testified that San Gabriel's estimate of sales to Cemex was based on a ten-year average, and proposed instead an estimate based on the average of the two most recent recorded fiscal years. This produced an estimate of test year sales to Cemex of 250,685 hundred cubic feet (ccf) as compared to San Gabriel's estimate of 223,666 ccf. DRA's recommendation is more reflective of Cemex's current and anticipated water use, and will be adopted.

In regard to CSI, San Gabriel's witness testified that San Gabriel officers had met with representatives of CSI in May 2005 and were informed that CSI had decided to rehabilitate its existing on-site well to produce its own water and had spent $900,000 so far on the project, which is expected to be completed later in 2005. CSI will still rely on San Gabriel for part of its supply and as a backup source of supply. San Gabriel estimates that San Gabriel's sales to CSI will be reduced by over 566,000 ccf per year.

DRA challenged San Gabriel's assumption that CSI will use its entire 1,300 acre-feet per year (AFY) of water rights. DRA's witness testified that a CSI officer contacted by DRA could not give clear-cut information regarding amounts CSI intends to self-provide. DRA recommended that sales to CSI be projected at 545,700 ccf, a level 283,140 ccf higher than San Gabriel's test year estimate, reflecting a 50% reduction in sales compared to San Gabriel's projected reduction. As San Gabriel has not produced persuasive evidence regarding CSI water demand, we will adopt DRA's more conservative estimate.

C. Miscellaneous and Construction Revenues

Miscellaneous Revenues are revenues recorded in Accounts 611 and 614. The revenues recorded in Account 611 consist primarily of reconnection fees collected from customers, which San Gabriel based on a five-year average in its forecast. The revenues recorded in account 614 consist primarily of reimbursements received by San Gabriel from third parties, mainly from the County of San Bernardino. DRA accepts the amount proposed by San Gabriel for Miscellaneous Revenues in the forecasted TY 2006-2007, with one exception. In August 2005, San Gabriel received $116,909 from the West Valley Water District, acting as a disbursement agent on behalf of the United States Environmental Protection Agency (US EPA), for grant funds for the reimbursement of certain operation and maintenance (O&M) costs incurred at Plant F17. DRA recommends Miscellaneous Revenues be increased by $116,909 to reflect an expected annual level of grant revenues. DRA also recommends that if future grant proceeds are received by San Gabriel in excess of the $116,909, then the excess amounts should be included in the Water Quality Memorandum Account (WQMA) for future benefit to ratepayers. San Gabriel's witness testified that this is a one-time reimbursement. San Gabriel agrees to adjust the test year forecast by one-third of the amount, or $38,970. DRA asserts that the company's data response indicated that additional US EPA funds would be forthcoming. Thus, contrary to San Gabriel's position, these funds will continue to be paid to San Gabriel on an annual basis.

DRA's assumption that the US EPA will give San Gabriel a grant of $116,909 in each escalation year is speculative at best. Including $116,909 in the test year Miscellaneous Revenues would give the ratepayers three times the benefit of a one-time payment. Should additional grant money be received by San Gabriel, the company has agreed that that money would be recorded in its WQMA for the benefit of ratepayers. San Gabriel's approach to the allocation of the $116,909 is to amortize it over three years, increasing the water revenue account by $38,970 in the test year. San Gabriel's proposal is reasonable and is adopted.