5.04 After comparing recorded with forecasted expenditures, the Parties agree that ORA's estimates for office and field equipment should be increased by the following amounts: Bakersfield District - $3,000 in 2001 and $29,000 in 2002; Hermosa-Redondo District - $4,200 in 2002; Palos Verdes District - $12,900 in 2002; and South San Francisco District - $4,000 in 2002.

5.05 The Parties agree that ORA's estimate for remodeling the field office in the Bakersfield District for additional storage should be increased by $39,000 in 2001 to reflect the bid CWS has received. The Parties also agree that the vehicle for the Bakersfield District Manager does meet the criteria (6 years and 100,000 miles or 8 years or 125,000 miles) adopted in CWS's prior cases and should be included in ORA's estimate of the Bakersfield District's additions for 2001.

5.06 Based on a review of recorded data for 2000, the Parties agree that CWS's estimate of nonspecific expenditures for the Base Case in the Hermosa-Redondo District is reasonable and that ORA's estimate should be increased by $50,000.

5.07 As a result of additional information that more clearly identifies the number and locations, the Parties agree that CWS's estimate for the installation of remote control systems for the South San Francisco District in 2001 is reasonable. Accordingly, ORA's estimate should be increased by $20,000.

6.00 GENERAL OFFICE

6.01 Except for the items listed below, CWS agrees with ORA's estimates of expenses and capital additions shown in its Report on the General Office.

6.02 The Parties agree to use the factors for inflation provided by ORA's Monopoly Regulation Branch. ORA's memorandum containing these factors is attached.

6.03 CWS is currently moving some customer-service functions from a mainframe computer to client-based servers. All functions are scheduled for conversion by the fourth quarter of 2002. Accordingly, the Parties agree to include $150,000 (annual expenses equal $200,000) in maintenance for the mainframe computer in 2002. CWS agrees to exclude these expenses starting in 2003.

6.04 ORA's report contains numerous adjustments to additions based on bids that CWS has received from vendors. The Parties agree that the bids should be used and that CWS's overhead (8%) should be added. Overheads are an allocation of the general office's expenses attributable to capital projects, including purchases. These changes increase ORA's estimate of additions by $108,600 in 2000 and $118,000 in 2001.

6.05 ORA's report contains various adjustments to the cost of passenger vehicles. After discussing the use, type, and actual cost, as well as the applicability of overheads to ORA's estimates, the Parties agree that a total cost of $26,000 for 2000 and for 2001 should be used for each passenger vehicle. Furthermore, the Parties agree to reinstate the vehicle for the Purchasing Department Manager in ORA's estimate of additions for 2001 based on additional information concerning her responsibilities.

6.06 After discussing specifications and applications, ORA and CWS agree that $2,100 should be used as the cost for each desktop computer, including software. This increases ORA's estimated additions by $6,500 in 2000 and $31,100 in 2001.

6.07 On January 18, 2001, CWS issued a request for proposal to install a Laboratory Information Management System for maintaining its data on water quality and submitting reports to the Department of Health Services. After reviewing the bid received from LabVantage of $751,000, excluding overheads, the Parties agree that CWS's estimate of $648,000 should be added to ORA's estimate of plant for 2001.

6.08 ORA reviewed additional information provided by CWS for the following items: tools, office furniture, SCADA alarms, SCADA testing, laser printers, security equipment, radios, portable flow meters, leak detectors, and heating and air conditioning. Based on this information, the Parties agree that ORA's estimates of plant should be increased by $25,700 in 2000 and $28,600 in 2001.

6.09 CWS's estimated additions for 2002 were primarily based on historical expenditures by category rather than a detailed description of specific items. After discussing their estimating methodologies, the Parties agree that CWS's historical expenditures should be included in the estimate for 2002. Therefore, the Parties agree that additions for 2002 should be $2.8 million, which is lower than historical expenditures, $428,000 lower than CWS's estimate, and $1,684,000 lower than the stipulated estimate for 2001.

6.10 After discovering an error in its adjustment for vehicles, CWS reduced stipulated plant by $44,700 in 2000, 2001 and 2002 and stipulated expenses by $3,900 in 2000, $4,400 in 2001, and $4,500 in 2002. ORA agrees with CWS's correction.

6.11 ORA and CWS agree that the stipulated rate base and expenses of the General Office should be used for the Palos Verdes and Hermosa-Redondo Base Cases. Additionally, the Parties agree that the revenue requirement for Test Years 2001 and 2002 in the Bakersfield, Palos Verdes, and South San Francisco Districts should be based on the rate base and expenses of the General Office adopted in D.99-05-018.

7.00 TREATMENT PLANT IN BAKERSFIELD

7.01 As discussed in Application 00-09-010 and ORA's Report on Proposed Surface Water Treatment Plant at NE Bakersfield, CWS proposes to construct a plant capable of treating 20 million gallons per day of surface water. This plant would be built in response to new standards issued by the United States Environmental Protection Agency ("EPA") which affect CWS's groundwater. Additionally, the plant is designed to accommodate forecasted growth in the Bakersfield District and to replace groundwater rendered unreliable by the high cost of treating radon and other contaminants.

7.02 Currently, 99% of the Bakersfield District's customers receive water through an interconnected system, which has 135 wells that supply 92% of the total supply. The Parties agree that the new plant will benefit customers in several ways. Some customers will be delivered water directly from the plant, while others will receive water from existing supplies that meet EPA's new standards. Below are listed additional factors that, although not readily quantifiable, support the need for the plant:

· EPA's proposed rule for radon and the new Groundwater Treatment Rule may also impact wells that exceed the new Maximum Contaminant Level for arsenic.

· Some well sites cannot accommodate treatment plants or facilities for holding brine or sludge.

· Additional pumping could decrease the capacity of some wells due to the overdraft in the groundwater basin.

· Surface water should improve the recharge and reliability of groundwater.

· Expanding the plant will provide the most economical supply to meet future demand and replace contaminated groundwater.

· Restrictions on surface water supplied by the Kern County Water Agency prevent its use throughout CWS's Bakersfield District.

· CWS's plant that serves the Olcese Area must be replaced and groundwater is not a viable option there.

7.03 In its report ORA recommends that CWS amend its agreement dated, March 31, 1999, with the City of Bakersfield (City) for supplying water from the Kern River to the proposed plant. With respect to that agreement ORA expressed two concerns: 1) that the supply be compatible with the life of the plant and 2) that all customers be treated equally during times of shortage. CWS and the City staff have agreed on an amended contract that addresses ORA's concerns. ORA has no objection to the amended contract and CWS agrees that future contracts with the City will not restrict CWS's ability to provide all customers equal access to its supply.

7.04 Due to uncertainties concerning the total costs and timing for the treatment plant, ORA recommends that rates not be increased until after expenditures are incurred. Accordingly, ORA recommended in its report that CWS be allowed to file an advice letter in 2001, 2002, and 2003 to recover the incremental cost of the proposed treatment plant.

7.05 On February 6, 2001, Black & Veatch provided CWS with an estimate of $33.7 million for the cost of the treatment plant. This estimate provides greater detail and more certainty with respect to costs and falls within the range of $30.1 million to $33.9 million of the preliminary estimate, as shown in ORA's report. Based on this information, the Parties agree that CWS should be authorized to file three advice letters for the revenue requirement associated with the incremental cost of the treatment plant, including labor, operating expenses, and interest during construction (IDC). Furthermore, the Parties agree that one advice letter may be filed in 2002, a second in 2003, and the third after the treatment plant is in service. Moreover, for the advice letters only, the capital costs should be limited to $31.0 million, not including IDC. Additionally, the Parties agree that the limit should be increased by the accrued IDC and that IDC should continue to accrue until rates for the third advice letter become effective. The Parties agree that this procedure would ensure that rates only recover actual costs including depreciation specific to the treatment plant.

7.06 Additionally, the Parties agree that the cost of $3.0 million for a main transporting raw water to the plant and an accompanying main carrying away finished water should be included in the adopted additions for 2001. Installation of these facilities will be in a right of way that will also serve as a municipal path for bicycles. Accordingly, the Parties agree that the mains should be installed at the same time the path is constructed.

7.07 Finally, the Parties agree that advice letters for the mains transporting finished water from the treatment plant (excluding the main in Section 7.06 above) and the pumping facilities delivering raw water to the plant would also provide greater assurance that only actual costs and related expenses will be included in rates. Accordingly, the Parties agree that, after construction is completed, CWS should be authorized to file separate advice letters for these facilities. These advice letters should reflect the revenue requirement associated with the facilities, including IDC, which should accrue until the respective advice letter becomes effective.

8.00 [ Intentionally left blank]

9.00 OTHER ADDITIONS BY ADVICE LETTER

9.01 ORA's report for the Palos Verdes District expresses concern over the timing and cost of certain projects. After discussing these concerns, CWS agrees with ORA's recommended treatment for two specific projects. Accordingly, the Parties agree that CWS should be authorized to file an advice letter for costs associated with the Water Service Reliability Project (Phase 2) and improvements at the Operations Center. For purposes only of these advice letters, the Parties agree to limit the capital costs to $750,000 for Phase 2 and $235,000 for the Operations Center. Furthermore, the Parties agree that the advice letters should be filed only after the capital costs have been incurred.

9.02 In its report, ORA identifies several factors that contribute to the uncertainty of CWS's proposed treatment of arsenic at its wells in the Bakersfield District. In addition to the method of treatment and final costs, ORA cites uncertainty surrounding EPA's reduction in the standard for arsenic. On January 16, 2001, shortly after ORA's report was mailed, EPA promulgated a standard for arsenic of 10 parts per billion, down from 50 parts per billion. The Parties recognize that, even with EPA's new standard, the method of treatment and final costs are not certain. Accordingly, the Parties agree that CWS should be authorized to file advice letters for treatment on wells in the Bakersfield District and that each advice letter should cover a minimum of $500,000 in capital expenditures, may include expenses for operation and maintenance, and must contain the following items:

1) Justification for the treatment chosen, including a comparison to other options and benefits;

2) Detailed data, including design, material, labor, overhead, and contingencies; and

3) Justification for expenses, including disposal of hazardous waste.

10.00 DESIGN OF RATES

The Parties agree that, consistent with the requirements of D.96-05-064, rates for general metered service should recover 50% of CWS's fixed costs through service charges and that a single commodity rate should recover the remaining fixed costs and all variable costs. Additionally, the Parties agree that the transition to the ratios (shown in Exhibits CWS-2, CWS-4, and CWS-8, page 12-1) established in 1991 should continue, but that a limit of no more than twice the average increase should apply. Finally, the Parties agree that to promote equity, the Bakersfield District's flat rates should be increased by the system average increase. The rates attached to this Stipulation meet these criteria.

11.00 EFFECTIVE DATE FOR NEW RATES

Consistent with D.90-08-045, which adopted a Revised Rate Case Plan for water utilities, the Parties agree that rates for Test Year 2001 should become effective five days after the effective date of the decision adopting this Stipulation. The language on page 12 of D.90-08-045 supports this position.

12.00 INCREASE IN RATES FOR THE PALOS VERDES DISTRICT

In D.00-05-047, the Commission adopted a procedure for CWS's first combined filing for its Palos Verdes and Hermosa-Redondo Districts and Dominguez's South Bay District. As required by the adopted procedure, CWS is scheduled to file a combined case in 2001, with rates effective in 2002. In response to the Assigned Commissioner's Ruling and Scoping Memo, dated January 11, 2001, in A.00-09-009 et al., the Parties have submitted briefs that show that CWS's request to increase rates for the Palos Verdes District is consistent with the procedure and requirements adopted in D.00-05-047. In the event it is modified for the Palos Verdes District, however, the parties agree that the Stipulation should be adopted without modification for all other districts, including the general office.

13.00 PUBLIC MEETINGS

A Public Meeting was held on March 12, 2001, in the Palos Verdes District and March 13, 2001, in the South San Francisco District. On March 16, 2001 ORA provided the Administrative Law Judge a summary of the issues raised by customers at these meetings. The Parties agree that these issues do not warrant a change to the Stipulation.

14.00 PROFORMA TEST

Each water utility is required to demonstrate that it qualifies for any previously authorized Step and Attrition Increase by passing a proforma test. In the proforma test, recorded depreciation is used in determining whether the utility's earnings are expected to exceed the Commission's latest adopted return. To the extent that earnings exceed the adopted return, the increase is reduced or eliminated. Additionally, proforma revenues used in the test are based on the latest rates approved by the Commission. Since the rates in this Stipulation reflect a change in depreciation based on updated service lives, the use of recorded depreciation and the latest adopted revenues creates an inconsistency in the proforma test. The mismatch between revenues and expenses occurs because the adopted revenues are developed using a full year of the new rates, while recorded depreciation only reflects the new rates going forward from the date of the decision. To ensure that the proforma tests for the Bakersfield, Palos Verdes, and South San Francisco Districts properly align expenses and revenues, therefore, the Parties agree that CWS should be allowed to use the latest adopted depreciation and revenues.

15.00 VERIFICATION

The signatories to this Stipulation personally and independently verify that all elements of it, including the tables and tariffs, are correct, complete, and internally consistent.

WATER BRANCH OF THE CALIFORNIA WATER SERVICE OFFICE OF RATEPAYER ADVOCATES COMPANY

By: \s\ Donald McCrea By: \s\ Francis S. Ferraro

California Public Utilities Commission California Water Service Company

505 Van Ness Avenue 1720 N. First Street

San Francisco, CA 94102 San Jose, CA 95112

(415) 703-3087 (408) 367-8225

Dated: March 27, 2001 Dated: March 27, 2001

Appendices - Contents

Appendix A Summary of Earnings by District

Appendix B Bakersfield Comparison Exhibit

Appendix C Hermosa-Redondo Comparison Exhibit

Appendix D Palos Verdes Comparison Exhibit

Appendix E South San Francisco Comparison Exhibit

Appendix F General Office Comparison Exhibit

Appendix G Stipulated Rate Increase By District

Appendix H Adopted Quantities

Appendix I Cost of Capital

Appendix J Tariff Sheets

Appendix K ORA Escalation Factor Memorandum, August 2000

Appendix B

Appendix C

Appendix D

Appendix E

Appendix F

* NOTE: Settlement Figures reflect updated inflation factors published by ORA on August 31, 2000

* NOTE: Settlement Figures reflect updated inflation factors published by ORA on August 31, 2000

* NOTE: Settlement Figures reflect updated inflation factors published by ORA on August 31, 2000

Appendix G

Appendix H

Appendix I

Appendix J

APPENDIX J-1

Page 1

Schedule No. BK-1

Bakersfield Tariff Area

GENERAL METERED SERVICE

APPLICABILITY

TERRITORY

RATES

SPECIAL CONDITIONS

                ( D )

                ( D )

                ( D )

    1. All bills are subject to the reimbursement fee set forth on Schedule Nos. UF and DHS-1.

APPENDIX J-1

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