ALJ/LRR/hl2 Date of Issuance 3/17/2008

Decision 08-03-022 March 13, 2008

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of California-American Water Company (U210W) to Decrease Revenues for Water Service in its Coronado District by ($73,100) or (0.46%) in 2008, and Increase Revenues by $266,200 or 1.67% in 2009, and $260,900 or 1.61% in 2010.	Application 07-01-036 (Filed January 22, 2007)
And Related Matters.	Application 07-01-037 Application 07-01-038 Application 07-01-039

OPINION ADOPTING THE REVENUE REQUIREMENT FOR
CALIFORNIA-AMERICAN WATER COMPANY'S
CORONADO AND VILLAGE DISTRICTS

TABLE OF CONTENTS

Title Page

OPINION ADOPTING THE REVENUE REQUIREMENT FOR
CALIFORNIA-AMERICAN WATER COMPANY'S CORONADO
AND VILLAGE DISTRICTS 22

1. Summary 22

2. Background 33

3. Settlement Agreement Between Cal Am and DRA 66

3.1. Mark West Comments on the Settlement Agreement 77

3.2. Terms of the Settlement 77

3.2.1. Cost of Capital 88

3.2.2. Customer Sales and Revenue 88

3.2.3. Operation and Maintenance Expense 99

3.2.3.1. Coronado District Purchased Water 99

3.2.3.2. Village District Water Treatment - Miscellaneous 99

3.2.3.3. Village District Transmission and Distribution - Miscellaneous 1010

3.2.3.4. Village District Purchased Water and Power 1010

3.2.4. Administrative and General Expenses 1010

3.2.5. Utility Plant in Service 1111

3.2.6. Depreciation Expense and Reserves 1313

3.2.7. Special Requests 1313

3.2.7.1. Infrastructure System Replacement Surcharge 1313

3.2.7.2. Rate Design 1313

3.2.7.3. Low-Income Program 1414

3.2.7.4. Full Cost Purchased Water Balancing Accounts 1414

3.2.7.5. Conservation Balancing Account and Surcharge and Program Funding 1414

3.2.7.6. American Jobs Creation Tax Act 1414

3.2.7.7. Balancing and Memorandum Account Balances 1515

3.3. Cal Am's and DRA's Motion to Adopt the Settlement 1515

4. Issues Not Included in the Settlement 1515

4.1. Cost of Capital 1515

4.1.1. Return on Equity 1515

4.2. Infrastructure Replacement System Surcharge 2222

4.3. Administrative and General Expense 2929

4.4. Employee Pensions and Benefits 2929

4.5. Regulatory Expense 3030

5. Comments on Proposed Decision 3131

6. Assignment of Proceeding 3232

Findings of Fact 3232

Conclusions of Law 3434

ORDER 3434

Attachment A: Settlement Agreements

Attachment B: Comparison Tables

OPINION ADOPTING THE REVENUE REQUIREMENT FOR
CALIFORNIA-AMERICAN WATER COMPANY'S
CORONADO AND VILLAGE DISTRICTS

1. Summary

This decision resolves the revenue requirement phase of the general rate case (GRC) application of California-American Water Company (Cal Am) for its Coronado (Application (A.) 07-01-036) and Village (A.07-01-039) districts. A separate decision will be issued for the Larkfield and Sacramento districts. For Coronado for 2008 we adopt a revenue decrease of $216,600 or (1.31%), which is effective from January 1, 2008. For Village for 2008, we adopt a rate increase of $326,000 or 1.53% which is effective from January 1, 2008. The rate design portion for all four districts will be decided in Phase II of this proceeding.

Today's decision adopts the settlement between Cal Am and the Division of Ratepayer Advocates (DRA). We find the settlement is reasonable in light of the whole record, consistent with law and in the public interest.

We adopt a return on equity (ROE) of 10.15% for Cal Am's Coronado and Village districts for the three-year GRC period, or until the next GRC decision for either district is issued.

We do not grant Cal Am's request for an Infrastructure System Replacement Surcharge (ISRS). We believe that Cal Am must first develop a comprehensive asset management plan identifying the specific areas requiring capital investment to replace or improve aging infrastructure before we will implement a surcharge.

We do not implement the pilot distribution system improvement charge¹ (DSIC) program developed in Decision (D.) 07-08-030 for the Cal Am Los Angeles District GRC. If successful, we envision the pilot program serving as a model for other Cal Am districts and Class A water utilities. We encourage Cal Am to take the necessary steps outlined here to implement an asset management plan and apply for DSIC in its next GRC.

Finally, this decision approves Cal Am's requested regulatory expenses and employee pensions and benefits expenses.

¹ The ISRS and DSIC are different names for similar infrastructure improvement funding mechanism.