Background

San Gabriel Valley Water Company (San Gabriel) provides public utility water service through its Los Angeles County Division (LA Division) to approximately 47,000 customers in the County of Los Angeles and the Cities of Arcadia, Baldwin Park, El Monte, Industry, Irwindale, La Puente, Montebello, Monterey Park, Pico Rivera, Rosemead, San Gabriel, Santa Fe Springs, South El Monte, West Covina, and Wittier. San Gabriel serves another 40,000 customers in San Bernardino County through its Fontana Water Company Division (Fontana Division). This general rate case involves only the LA Division and its general office serving both divisions.

San Gabriel filed the application on September 1, 2004, and the Commission in Resolution ALJ 176-3139 preliminarily determined this to be a ratesetting proceeding expected to go to hearing. Assigned Administrative Law Judge (ALJ) James McVicar held a prehearing conference on November 1, 2004. Assigned Commissioner Michael Peevey's November 5, 2004 scoping ruling confirmed the category and need for hearing, defined the issues, established a schedule, and designated ALJ McVicar as the principal hearing officer and thus the presiding officer.

ALJ McVicar conducted two days of evidentiary hearing in Los Angeles on January 19 and 20, 2005, and a public participation hearing the evening of January 20 in La Puente. The proceeding was submitted on receipt of closing briefs on March 21, 2005 following two extensions, the first sought jointly by both parties, the second requested by the Commission's Office of Ratepayer Advocates (ORA) and agreed to by San Gabriel.

San Gabriel's application requests the rate increases shown in Table 1 to counter the effects of substantial increases in major expense items and plant investment. Of the five most significant issues the application identifies as driving San Gabriel's rate increase request, increased rate of return is by far the largest. The others are two well and reservoir projects, a water treatment project, and a new office building. In addition, San Gabriel seeks Commission approval to modify, and/or amortize balances in various balancing and memorandum accounts. The rate effects of those additional requests are not included in the Table 1 figures.

Table 1

Requested vs. Adopted Increases

	Application Requested		Adopted
	$	%	$	%
Test Year 2005/2006	$11,010,200	29.3%	$4,110,200	10.9%
Escalation Year 2006/2007	$1,590,100	3.3%	$ 516,600	1.2%
Escalation Year 2007/2008	$1,798,600	3.6%	$ 416,800	1.0%

Notes: (1) Adopted increase shown for 2005/2006. For 2006/2007 and 2007/2008, increases shown as adopted are only estimates based on April 2005 escalation factors. (2) Application Requested column includes the rate effects of 16 major plant addition projects not reflected in the adopted figures.

San Gabriel prepared its request using an 12.00% return on common equity, which it estimated would produce an 11.17% rate of return on rate base each year of the three-year rate case cycle.