Condition 6: "A decision must be issued authorizing Cal Water to submit an Advice Letter filing for PBOP accruals prior to Cal Water receiving any and all rate recovery for PBOP accruals. Such a decision or ruling shall be made in response to satisfaction of all of the conditions set forth in item no. 5, above."

DRA never fulfilled its obligation under Condition 5 to review AL 1341 and the reasonableness of the FAS 106 costs requested by Cal Water.¹⁸ However, CACD did review AL 1341 and found that it complied with D.92-12-015. Based on the preceding, we conclude that AL 1341 complied with Condition 1.

DRA next argues that AL 1341 failed to comply with the requirement in Conditions 1- 4 to provide the workpapers, documents, and information specified by these Conditions. DRA asked Cal Water to provide all of this material in the instant proceeding, but Cal Water was unable to do so because much of the material is missing. In light of this missing material, DRA asserts that Cal Water has failed to prove that AL 1341 complied with Conditions 1-4.

We are not surprised that much of the material that was provided with AL 1341 in 1994 was missing 13 years later when DRA requested the material in 2007. Regardless, Cal Water has offered convincing evidence that all of the material required by Conditions 1-4 was provided in 1994. AL 1341 listed the documents and work papers that were provided with the Advice Letter. The list includes everything that Cal Water was required to provide by Conditions 1-4. Further, the Cal Water officer responsible for filing AL 1341 testified that he is certain that AL 1341 included all of the material listed in the Advice Letter.¹⁹ We also believe that CACD would not have accepted AL 1341 if it did not include the material required by Conditions 1-4 (and which AL 1341 explicitly identified as having been provided with the Advice Letter). For the preceding reasons, we conclude that AL 1341 complied with Conditions 1-4.

DRA suggests that it did not receive a copy of AL 1341 and had no opportunity to review the Advice Letter in accordance with Condition 5. Contrary to DRA's suggestion, the evidence shows that DRA did receive a copy of the Advice Letter. Cal Water offered as contemporaneous evidence a stamped copy of AL 1341 from Commission records. The Advice Letter shows that two managers in DRA (John Yager and Han Ong) received copies of AL 1341 with the attached documents and work papers.²⁰ Further, the Cal Water officer responsible for filing AL 1341 testified that he is certain that DRA received copies of AL 1341.²¹ Based on this evidence, we conclude that Cal Water did provide AL 1341 to DRA as required by Condition 5, that DRA had an opportunity to review AL 1341, and that DRA declined to protest AL 1341.

Finally, DRA claims that AL 1341 failed to comply with Condition 6, which directed Cal Water to file an advice letter for recovery of its FAS 106 costs after the Commission had issued a decision or ruling that (1) authorized Cal Water to file the advice letter, and (2) found that Cal Water had complied with Condition 5. However, the Commission never issued the decision or ruling contemplated by Condition 6.

DRA fails to recognize that one of the purposes of AL 1341 was to serve as the Compliance Filing intended by Conditions 1-4 of the Settlement Agreement. This is evident from the following statement in AL 1341:

As part of the [Settlement Agreement]...Cal Water agreed to submit a compliance filing which address the ordering paragraphs of (D.) 92-12-015. The accompanying workpapers contain the documentation requested in [the Settlement Agreement]. (AL 1341, p. 3. Emphasis added.)

Because AL 1341 was the Compliance Filing, there was no requirement that Cal Water obtain Commission authority under Condition 6 prior to filing the Advice Letter. CACD had no trouble recognizing AL 1341 as the Compliance Filing, perhaps because AL 1341 provided all the information, documents, and work papers required of the Compliance Filing by the Conditions 1-4.

DRA is correct, however, that Condition 6 called for a Commission decision or ruling that (1) found Cal Water's accounting, funding, and ratemaking for FAS 106 costs complied with D.92-12-015, and (2) authorized Cal Water to file an advice letter to recover its FAS 106 costs. The Commission was to issue its decision or ruling after DRA had reviewed AL 1341 and notified the Commission of the results of its review. DRA never did so.

DRA's inaction left the Commission in limbo. CACD filled the void with its letter dated June 10, 1994, that accepted AL 1341 "in accordance with Decision Nos. 92-12-015 and 93-08-033.²²" This indicates that CACD reviewed AL 1341 to determine if it complied with D.92-12-015 and D.93-08-033, found that it did, and accepted the Advice Letter. DRA provided no evidence that CACD did not review AL 1341 for compliance with D.92-12-015 and D.93-08-033, and we are not going to assume that CACD failed to do its job.

The Commission apparently concurred with CACD's decision to accept AL 1341. In D.94-09-032, the Commission determined that all issues in the proceeding in which D.93-08-033 had been issued were resolved and that the proceeding could be closed.²³ It is unlikely that the Commission would have found that no issues remained if it believed that the Conditions of the Settlement Agreement adopted by D.93-08-033 were unfulfilled or that CACD's acceptance of AL 1341 was improper.

5.5. Alleged Harm and Proposed Remedies

DRA alleges that Cal Water violated D.92-12-015 and D.93-08-033, resulting in $4.26 million of harm to ratepayers. DRA proposes several remedial actions, including a fine of $3 million.

Today's opinion, supra, finds that Cal Water complied in all substantial respects with D.92-12-015 and D.93-08-033. Consequently, there is no need to consider DRA's proposed remedies.

5.6. Approval of A.06-12-025

We conclude that Cal Water complied with D.92-12-015 and D.93-08-033. Therefore, we will grant A.06-12-025. Cal Water shall file tariffs within 20 days from the effective date of this opinion to recover over a 15-year period its $9.87 million PBOP regulatory asset. The tariffs shall be effective pending disposition by Commission staff.

The regulatory asset shall be recovered initially via a usage-based surcharge that is the same for all customers. Cal Water's tariff filing shall include work papers showing the derivation of the surcharge. The surcharge for each district shall begin with the first full billing cycle for the district following the date that Cal Water files its tariffs. Cal Water may roll the surcharge into the general rates for each district in future GRC proceedings.²⁴

As required by D.92-12-015, all funds that Cal Water collects in rates for its PBOP regulatory asset shall be used to provide PBOP or returned to ratepayers.²⁵

¹⁸ Cal Water Opening Brief, p. 36; DRA Opening Brief, p. 35.

¹⁹ Ferraro/Cal Water, 1 RT 111: 14-26 and Cal Water Exhibit 5.

²⁰ AL 1341, p. 3. The Advice Letter is attached to A.06-12-025 as Exhibit 2.

²¹ Ferraro/Cal Water, 1 RT 111: 14-26; 1 RT 137: 22 - 37; and Cal Water Exhibit 5.

²² CACD letter, p. 1. A copy of CACD's letter is attached to A.06-12-025 as Exhibit 2.

²³ D.94-09-032, 56 CPUC 4, 8, and 19.

²⁴ Cal Water has a request pending in A.07-07-001 for full recovery of its FAS 106 expense accrual. Granting Cal Water's request in that proceeding would eliminate any further additions to its PBOP regulatory asset. Today's opinion does not prejudge any aspect of A.07-07-001. Cal Water's requested FAS 106 costs in A.07-07-001 may be granted or denied, in whole or in part, depending on the facts, law, and circumstances presented in that proceeding.

²⁵ D.92-12-015, OP 3.