19. Assignment of Proceeding

John A. Bohn is the assigned Commissioner and Janice Grau is the assigned Administrative Law Judge in this proceeding.

1. The joint motions to adopt settlement agreements and settlement agreements were filed as follows:

· Suburban/DRA on conservation rate design trial program on April 24, 2007;

· Suburban/DRA on LIRA on April 24, 2007;

· Park/DRA on conservation rate design, WRAM, and MCBA trial program on June 15, 2007;

· CalWater/DRA/TURN on conservation rate design (amended settlement), WRAM, and MCBA trial program on June 15, 2007;

· Park/DRA on conservation memorandum account on July 30, 2007;

· Suburban/Joint Consumers on customer outreach and education and data collection and reporting on August 10, 2007;

· Park/Joint Consumers/CFC on data collection, monitoring, and reporting on August 10, 2007; and

· Suburban/DRA on ROE adjustment on October 19, 2007.

2. The Suburban/DisabRA MOU addresses accessibility improvements for persons with disabilities.

3. The conservation rate design, WRAM, and MCBA settlement agreements propose trial programs, which will remain in effect until the utilities' next GRCs.

4. The comments, testimony and hearing record provide a comprehensive record for consideration of the settlements.

5. CFC requested the Commission delay implementation of conservation rates until cost studies were done and opposed the Suburban, Park and CalWater conservation rate designs and the Park and CalWater WRAMs. CFC requested that Suburban's, Park's and CalWater's proposed rate designs in their applications be adopted if the Commission proceeds to adopt conservation rates.

6. The Joint Consumers opposed the Suburban LIRA's flat-rate discount.

7. The Phase 1 scoping memo authorized ongoing settlement negotiations and ordered parties to address some of the rate-related conservation objectives identified in the OII in settlement agreements and/or motions proposing them. Preparation of cost studies is not within the scope of this proceeding.

8. The WAP recommended means to achieve the stated objective of strengthening water conservation programs to a level comparable to those of energy utilities. The WAP did not quantify that objective.

9. Conservation goals of selected California municipalities vary but are generally in the range of a 12.5% to 25% reduction in consumption over a varying number of years. These goals are consistent with the anticipated reduction of 10%-20% over 10 to 20 years that can result from a carefully designed conservation program.

10. Phase 2 of this proceeding will examine the specific reduction in consumption Class A water utilities should achieve through price and non-price programs.

11. In most CalWater districts the non-residential quantity charge already captures more than 70% of revenues, consistent with CUWCC's requirement. The proposed non-residential rate designs lower service charges, increase quantity charges, and conform all districts to CUWCC's requirement. In districts with two quantity charges, some non-residential customers with larger meter sizes and higher average consumption will experience lower increases than other customers with smaller meter sizes and lower average consumption. The number of these customers is small, approximately .25% of all non-residential customers.

12. CalWater's proposed tiered residential rate design establishes tiers based on the consumption patterns of each district. The first tier is set using a proxy of indoor water use based on seasonal indicators and is priced at approximately 5% less than the single quantity rate that would be adopted under standard rate design. The second tier is also based on seasonality and extends from the top of Tier 1 to the midpoint between the weather adjusted annual monthly and summer averages. Tier 2 is priced to be approximately the single quantity rate that would be adopted under standard rate design.

13. Park's proposed non-residential rate design results in 75% of revenue coming from the quantity charge and moves Park in compliance with CUWCC's directive that more than 70% of revenues originates from the quantity charge.

14. Park's proposed rate design increases rates for all residential customers above the current single tier commodity rate of $2.42 Ccf. The proposed Tier 1 commodity rate is $2.53 Ccf, and the proposed Tier 2 rate is $2.78 Ccf.

15. Suburban's various elevations result in average consumption that is greater than other utilities' customers' average consumption. In the proposed residential rate design, the upper level of Block I was set at the midpoint between average monthly (annual) consumption and average summer consumption. Customers with low and average levels of use would remain within Block I. Customers with consumption greater than the summer average would fall in Block II.

16. Suburban and DRA tracked demand characteristics, particularly from June through September, to see how they compared to the total year, and determined that those four months best reflected summer and the highest usage months.

17. The WAP concluded water utilities had a financial disincentive to conserve water and full decoupling of sales and revenues was necessary to remove that disincentive.

18. Suburban obtains 70% of purchased water from 25 different sources. Suburban has the incentive to avoid additional purchases of water at higher incremental rates, a scenario not envisioned in the WAP. The Suburban WRAM proposal is consistent with the CalAm WRAM that has been in effect since 1996.

19. CalWater proposed a toilet replacement program in its Bear Gulch District, which would result in water savings of 15 acre-feet per year. At current rates, revenue loss would be $15,682 annually. For Park the most expensive source of the adopted cost of purchased water is $1.14/Ccf, less than half the adopted single tier commodity rate.

20. Phase 1B is addressing whether ROE adjustments are necessary if the settlements' proposed WRAMs and MCBAs are adopted.

21. The Suburban and DRA LIRA settlement provides that low-income residential customers who meet the requirements for the CARE program will receive a $6.50 monthly credit. The Joint Consumers propose a 15% reduction in the total bill. The Joint Consumers prefer that service charges be lowered for all customers to promote conservation, not just low-income customers.

22. Suburban and DRA rejected a total bill percentage discount as inconsistent with the conservation rate design settlement's conservation proposal, which increases charges for higher consumption.

23. The Commission previously found a service charge discount meets the policy objectives of § 739.8. (San Gabriel Valley Water Company, D.05-05-015, 2005 Cal. PUC LEXIS 167 *6.)

24. Phase 2 will consider the impact of conservation rate designs on LIRAs and higher discounts on service charges for larger households.

25. Suburban requests a memorandum account to track costs for developing and establishing a conservation rate design, including legal and consulting services associated with its consolidated application and all customer notifications that are not otherwise covered separately by the low-income memorandum account. DRA supports the request for prospective expenses only on the grounds that full recovery would be contrary to the principle against retroactive ratemaking.

26. In I.89-03-005, et al., the Drought OII, the Commission permitted tracking of legal expenses for participating in the proceeding in memorandum accounts established after the issuance of the OII. Cal-Am sought by an October 16, 2007 advice letter to establish a memorandum account to track expenses arising from its participation in this proceeding; on November 13, 2007, the Commission's Water and Audits Division rejected the advice letter.

27. Park's conservation memorandum account is unopposed.

28. The Park, CalWater and Suburban settlements' rate designs are based on the revenue requirements in effect at the time of the agreement. If those rates are adopted and/or implemented after the attrition or escalation factor adjustment, they will not reflect the utilities' current revenue requirement. The parties propose recalculated rates be presented as amendments to the settlement agreements or as compliance advice letters.

1. It is reasonable for Class A water utilities to achieve a specific goal by annually reducing consumption through price and non-price programs.

2. The proposed settlements generally are reasonable in light of the whole record, consistent with the law, and in the public interest.

3. The conservation rate designs will advance the WAP's conservation objectives and will be reviewed to determine whether they meet targeted reductions in consumption. The CalWater and Park WRAMs and MCBAs implement the WAP's objective of decoupling sales and revenues to encourage successful conservation programs. The Suburban WRAM best meets Suburban's unique circumstances.

4. It is reasonable that amortization of CalWater's and Park's WRAMs and MCBAs shall be subject to any ROE adjustment adopted in Phase 1B of this proceeding, as set forth herein.

5. The Suburban LIRA program meets the policy objectives of § 739.8.

6. Pursuant to Rule 12.1(d) of the Commission's Rules of Practice and Procedure, we should adopt the settlement agreements.

7. It is reasonable to deny Suburban's request to track in a memorandum account expenses incurred between the issuance of D.06-08-017 and the issuance of this OII as such recovery is contrary to the principle against retroactive ratemaking. Because these costs were anticipated at the time of Suburban's GRC proceeding, there is no reason to consider recovery of them now.

8. In light of the summary staff rejection of Cal-Am's advice letter seeking memorandum account treatment, it is reasonable to authorize Suburban and other Class A water utilities to track legal and related expenses, incurred after the issuance of this OII, that arise due to our requiring the utilities' participation in this generic proceeding to develop conservation rate designs and address non-rate design issues.

9. It is reasonable to modify the conservation rate design settlement agreements to permit Suburban, Park, and CalWater to file Tier 1 compliance advice letters under General Order 96B to submit rates recalculated to reflect the 2008 revenue requirement. The 90-day implementation of the settlements shall run from the date the advice letters are deemed approved.

10. In order to promptly implement conservation rates, WRAMS, MCBAs, customer education and outreach, data collection and reporting, and the Suburban LIRA and memorandum account, this decision should be effective immediately.

ORDER

IT IS ORDERED that:

1. The following settlement agreements are approved and adopted:

· April 24, 2007 Suburban Water Systems (Suburban)/Division of Ratepayer Advocates (DRA) on conservation rate design;

· April 24, 2007 Suburban/DRA on low-income ratepayer assistance program;

· June 15, 2007 California Water Service Company (CalWater)/DRA/The Utility Reform Network (TURN) on conservation rate design, water revenue adjustment mechanism (WRAM), and modified cost balancing account (MCBA);

· June 15, 2007 Park Water Company (Park)/DRA on conservation rate design, WRAM, and MCBA;

· July 30, 2007 Park/DRA on conservation memorandum account;

· August 10, 2007 Suburban/The Utility Reform Network , the National Consumer Law Center, Disability Rights Advocates, and Latino Issues Forum (Joint Consumers) on customer outreach and education and data collection and reporting;

· August 10, 2007 Park/Joint Consumers/Consumer Federation of California on data collection, monitoring, and reporting; and

· October 19, 2007 Suburban/DRA on return on equity adjustment.

2. Suburban, Park, and CalWater shall file Tier 1 compliance advice letters under General Order 96B to submit rates recalculated to reflect the 2008 revenue requirement, as set forth herein. The 90-day implementation of the settlements shall run from the date the advice letters are deemed approved.

3. Amortization of the CalWater and Park WRAMs and MCBAs is subject to the return on equity adjustment under review in Phase 1B of this proceeding, as set forth herein.

4. A conservation memorandum account is authorized for Park to book prospective conservation expenses, as set forth herein.

5. A memorandum account is authorized for Suburban and other Class A water utilities to track legal and related expenses incurred in participating in this proceeding from the date of issuance of this order instituting investigation (OII). Costs of preparing applications consolidated with this proceeding, whether incurred prior or subsequent to the issuance of the OII, shall not be tracked in the authorized memorandum accounts. Suburban's request to track legal and consulting expenses incurred prior to the issuance of this OII is denied.

6. Suburban, Park, and CalWater shall provide the following information in their next general rate case: monthly or bimonthly (depending upon the billing cycle) per customer or service connection changes in consumption by district, separated by meter size and customer class, following the implementation of the conservation rate design trial programs; surcredits or surcharges by district and customer class implemented in amortizing WRAMs and/or WRAMs/MCBAs; increase or decrease in disconnecting low-income program participants for nonpayment by district after adoption of conservation rate designs; increase or decrease in low-income program participation by district after adoption of conservation rate designs; increase or decrease in residential disconnections for nonpayment by district after adoption of conservation rate designs; identification of any weather or supply interruption that might contribute to consumption changes in districts; and any other district-specific factor that might contribute to consumption changes.

This order is effective today.

Dated February 28, 2008, at San Francisco, California.

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