VIII. Rejection of Stipulation on Palos Verdes District Rate Increases

Applicant requests approval of rate increases for its Palos Verdes District for 2001 through 2004. Applicant and ORA have reached a stipulation as shown below.

Palos Verdes District Revenue Requirement Increases

	Applicant		ORA		Stipulation
	$	%	$	%	$	%
2001	464,900	2.1	250,100	1.1	351,100	1.6
2002	386,500	1.7	40,100	0.2	258,900	1.2
2003	612,600	2.7	184,000	0.8	255,600	1.1
2004	607,900	2.6	167,000	0.7	264,600	1.1

In D.00-05-047 (the merger decision), we approved a merger of Applicant with Dominguez Water Company, Kern River Valley Water Company, and Antelope Valley Water Company. Ordering Paragraph 2 provides in relevant part as follows.

"In accordance with the enhanced guarantee, upon merger CWS: . . .

"c. Is authorized to combine the South Bay, Hermosa-Redondo and Palos Verdes districts into a single district for operational and administrative purposes but shall not consolidate their rate schedules. CWS shall design rates separately for each of the three former districts based on their historic costs of service which shall reflect differences, among other things, in the source and cost of water supplies.

...

"e. Shall file an application in 2000 to determine "Base Year 2000" revenue requirements for the Palos Verdes and Hermosa-Redondo districts and for CWS' general office. These base case revenue requirements will provide the benchmark for assessing merger-related synergies in the first combined-district GRC filed in mid-year 2001 (with rates effective in 2002) and the second combined-district GRC filed in 2004 (with rates effective in 2005). If necessary to ensure rate neutrality, reductions in the 2002 and 2005 GRC revenue requirements will be imputed. If an imputation is required in the 2005 GRC, CWS' operating expenses will be adjusted permanently to reflect the reduced revenue requirement."

Under the rate case plan specified above, Applicant was required to file a base year 2000 revenue requirement for its Palos Verdes and Hermosa-Redondo Districts in 2000. The base year 2000 revenue requirement is to be used in assessing merger-related synergies for the combined district following approval of the merger. A general rate case application for the combined district was deferred until 2001, for rates effective 2002. In this way, the synergies resulting from the combination will be assessed and reflected in the revenue requirement. Though the rates for the former districts would be set individually to reflect certain different historical costs, all three of the former districts will benefit from merger-related synergies.

Applicant did not follow these instructions. Instead, Applicant filed in this consolidated proceeding for rates effective on a stand-alone basis in 2001, 2002, 2003 and 2004. Applicant states that the merger decision does not preclude the filing, and that it is consistent with the Commission's rate case plan for water companies.

ORA states only that Applicant's filing for rates for 2001 is not precluded by the merger decision. ORA does not address whether Applicant's filing for 2002, 2003 and 2004 is precluded.

The merger decision does not have language specifically forbidding Applicant from filing, in 2000, for a Palos Verdes rate increase effective in 2001. However, Applicant and ORA are incorrect in stating that such filing is not precluded by the merger decision. The merger decision sets up a new regulatory framework, post merger, for the combined district. Under that framework, general rate cases for the combined district are to be filed in 2001 and 2004 for rates effective 2002 and 2005, respectively. Applicant did not request authority in the merger application to file a stand-alone general rate increase for its former Palos Verdes District in 2000 for rates effective 2001. Therefore, there was no reason for the merger decision to specifically address such a filing.

Like the request for 2001, Applicant's request for 2002, 2003, and 2004 as a separate district ignores the merger itself. The latter request is also to be made by an application for the combined district as opposed to a separate filing

for the former Palos Verdes District. The combined district application would allow for the assessment of merger-related synergies. The instant application does not allow for such an assessment because the other two former districts are not included.

For the above reasons, we will not approve rate increases at this time for the Palos Verdes District.

The motion requesting adoption of the stipulation states that in the event the stipulation is modified for the Palos Verdes District, the stipulation should be adopted without modification for the other districts. Therefore, we need not and do not reject the stipulation in its entirety merely because of our denial of rate increases for the Palos Verdes District.