III. Advice Letter Filings

As discussed below, Cal Water has repeatedly acquired small water systems and then sought Commission authorization for the acquisition two years or more after the fact. The belated requests for authorization were made despite clear direction regarding such acquisitions given to Cal Water by the Commission in D.97-03-028. The Commission approved this direction pursuant to a stipulation between ORA and Cal Water.

On March 12, 1997, Cal Water acquired the Indian Springs Mutual Water Company (Indian Springs). More than five years later, on May 6, 2002, Cal Water submitted Advice Letter (AL) 1515, which contained a Salinas District service area map, revised to include the Indian Springs acquisition, and a new tariff schedule for residential flat rate service. The AL showed that Indian Springs is not hydraulically connected with but is adjacent to Cal Water's Salinas District system and has 175 customers.

Cal Water acquired Country Meadows Mutual Water Company (Country Meadows) on March 9, 2000. Country Meadows has 108 customers in Monterey County and is neither hydraulically connected with nor adjacent to Cal Water's Salinas District system. In AL 1514, submitted on May 6, 2002, Cal Water included a revised Salinas District service area map with the County Meadows acquisition and a new residential flat rate service tariff.

Cal Water acquired the Olcese Water District (Olcese) on October 29, 1999, and filed a similar advice letter (AL 1517) on June 26, 2002 (nearly three years after the fact), seeking authority to acquire Olcese and merge it with Cal Water's Bakersfield District. The advice letter filing showed that Cal Water had already merged Olcese into Cal Water's Bakersfield District without Commission authorization. Unlike the Indian Springs and Country Meadows acquisition agreements, however, the Olcese acquisition agreement provided that customers would be charged the Commission-approved rate for the neighboring Bakersfield District. The former Olcese customers were included in the Bakersfield District's last GRC, resolved by D.01-08-039 in August 2001.

The Water Division reviewed Cal Water's late-filed advice letters for Country Meadows and Indian Springs and found that the terms of the acquisition agreements "appeared to be contrary to law." In draft Resolution (Res.) W-4390, the Water Division recommended that the Commission deny approval of ALs 1514 (Country Meadows), 1515 (Indian Springs), and 1517 (Olcese). In comments on the draft resolution, Cal Water requested that the Commission allow Cal Water and the Water Division to meet and confer regarding possible reformation of the acquisition agreements. The Commission then revised the draft, and Res. W-4390, as adopted, directed the Water Division to assist Cal Water in reforming the agreements to comply with applicable law and policy.

On March 9, 2004, Cal Water filed reformed agreements for Country Meadows and Indian Springs. The Country Meadows reformed agreement provided that each customer will continue to pay a $49 monthly flat rate, and that Cal Water will install meters for all customers within two years. When meters are installed, the customers will be added to Cal Water's Salinas District and charged the then-applicable rates. Cal Water believes the $49 flat rate is reasonable based on its cost of service study, which provided for a 9.02% rate of return.

The reformed Indian Springs agreement provides that the Indian Springs customers will be incorporated into Cal Water's Salinas District and that meters will be installed within 12 months. Pending installation of the meters, the customers will be charged a flat rate of $37.12 per month, which is based on the Salinas District cost of service.

On April 22, 2004, in Res. W-4462, the Commission approved the reformed agreements for Indian Springs and Country Meadows. The resolution also approved a reformed agreement for Olcese and consolidated in this proceeding issues related to Cal Water's prior unauthorized service in the three systems.

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