3. The Cal Water-DRA Settlement's Provisions on Key Issues

The key issues in dispute between Cal Water and DRA and resolved in their settlement agreement include the following:

1. Rate increases. The settlement results in lower rate increases than Cal Water initially proposed in each of the Eight Districts at issue here. Cal Water's application proposed the following increases:

Application

District	July 1, 2008 Proposed Increase, ($1,000)	% Increase	July 1, 2009 Proposed Increase, ($1,000)	% Increase	July 1, 2010 Proposed Increase, ($1,000)	% Increase
Chico	$6,380.4	49.0%	$1,651.1	8.5%	$1,651.1	7.8%
East Los Angeles	$7,193.2	36.5%	$2,034.8	7.6%	$2,034.8	7.0%
Livermore	$3,960.9	31.2%	$942.2	5.7%	$942.2	5.4%
Los Altos	$5,172.5	30.5%	$1,189.1	5.4%	$1,189.1	5.1%
Mid-Peninsula	$5,435.1	23.7%	$1,634.2	5.8%	$1,634.2	5.5%
Salinas	$5,119.7	29.7%	$3,636.9	16.2%	$2,271.3	8.7%
Stockton	$7,474.6	29.0%	$1,422.4	4.3%	$1,422.4	4.1%
Visalia	$3,651.9	28.1%	$3,546.4	20.9%	$3,620.5	17.3%

The settlement between Cal Water and DRA seeks Commission approval of the following increases,⁵ most of which are lower than those in Cal Water's application:

Settlement, plus Cal Water position on lot fees

2. New employees. The original GRC application sought to add 148 new employees at the General Office level.⁷ Cal Water's existing General Office workforce is 239 employees, so the increase would be more than 60 percent. The settlement allows for the addition of 59 new employees at the General Office level over three years, a still considerable increase of 39 percent, but a far lower number than the 148 employees Cal Water originally proposed.⁸

3. Conservation budget. The parties agreed to a conservation budget consistent with Cal Water's last GRC decision, Decision (D.) 07-12-055, mimeo., p. 35,⁹ where budgets are based on Cal Water's revenues. The settled conservation expenses will also be subject to a one-way balancing account that caps the amount of total spending over two years, but allows for the limited carryover of funds to the second year. Cal Water will refund to ratepayers any unspent funds not subject to the carryover provision.

4. Water quality. DRA and Cal Water ask the Commission to make a finding that Cal Water's Eight Districts meet all applicable water quality standards.

5. Pilot process for infrastructure planning. In its application, Cal Water proposed a surcharge, or "Infrastructure Investment Surcharge Mechanism" (IISM) to fund long-term infrastructure investment. DRA and Cal Water agreed that the IISM proposal needs work and may be denied at this time. They agreed to a pilot project allowing Cal Water interim recovery of rate base offsets, with reasonableness reviews, to mitigate Cal Water's concern about regulatory delay.¹⁰

6. Additional Commission review of infrastructure projects. DRA and Cal Water agreed that 23 of the utility's proposed capital projects will be excluded from the company's revenue requirement until they are completed, in service and reviewed by the Commission. Cal Water will be required to file rate base offset advice letters after completing each project.

7. Workers' Compensation issues. The parties agreed to DRA's recommendation that Cal Water's workers' compensation revenue requirement be calculated based on the "PayGo" method already used by the Commission.

8. Postretirement Benefits Other than Pensions (PBOPs). The parties agreed on the amount of PBOP costs and recovery of a PBOP regulatory asset in the future.

9. Other issues. The parties also agreed to:

a. limit ratepayer funding of certain meals, dues and moving expenses for Cal Water employees;

b. give rate relief to certain Livermore customers who pay rates based on 1-inch connection necessary for fire protection, and Cal Water will identify customers in other districts eligible for the same treatment; and

c. phase in rate increases for the Visalia and Salinas districts to mitigate rate shock.

The Scoping Memo for this proceeding also raised additional issues that the Settlement does not address because the parties' positions were not in dispute after they filed their testimony. These issues include the following:

10. Vehicle replacements. The parties agreed that Cal Water will replace vehicles less often than proposed in the application, and in accordance with D.07-12-055, except for certain vehicles purchased before that decision was issued.

11. Unregulated businesses. The Commission raised concerns about an unregulated offering, Extended Service Protection (ESP), in Cal Water's last GRC, so the Scoping Memo included the issue. The Commission's issues with the ESP program are the subject of a post-D.07-12-055 process and therefore we need not address them here.¹¹

⁵ The table assumes that we adopt Cal Water's position on one of the disputed issues not covered by the settlement.

⁶ One ccf is equal to one hundred cubic feet.

⁷ Cal Water's General Office functions are support functions that benefit all of its water districts. Cal Water thus allocates costs incurred at the General Office level out to the districts in accordance with a "four factor" methodology described later in this decision.

⁸ Settlement § 3.2.3.2.

⁹ Settlement § 4.2.2.9.

¹⁰ Under the pilot, Cal Water will continue to file for rate base offsets using the Tier 3 advice letter process under General Order 96-B. The change will be that each such advice letter will be effective immediately, but subject to refund with interest if necessary when the Commission issues a Resolution on the advice letter. Cal Water will ask for review of the pilot process in the next GRC filing. Settlement § 5.2.

¹¹ The ESP service was a $4.95/month protection plan that guaranteed the company would quickly repair or replace a customer's water line if it broke between Cal Water's meter, generally located at the street curb, and the customer's house. In response to D.07-12-055, Cal Water discontinued the program as of February 25, 2008. Ex. 49 at 1 (Ferraro Supplemental Testimony). It is in the process of re-applying to offer the program, but that application will be handled separately from this case.