VI. Assignment of Proceeding

Susan P. Kennedy is the Assigned Commissioner and Maribeth A. Bushey is the principal hearing officer in this proceeding.

Findings of Fact

1. Cal Water acquired Indian Springs on March 12, 1997, and since that time has provided public utility water service to the former Indian Springs customers. Cal Water has spent at least $56,000 in capital investments for these customers, has not included revenue from these customers in revenue requirement, and did not file the Indian Springs acquisition agreement as required by D.97-03-028. Cal Water has collected about $329,778 from these customers.

2. The Indian Springs acquisition agreement provides that non-residential customers will be charged the prevailing Salinas District rate.

3. Cal Water acquired Country Meadows on March 9, 2000, and since that time has provided public utility water service to the former Country Meadows customers. Cal Water has spent at least $97,800 in capital investments for these customers, has not included revenue from these customers in revenue requirement, and did not file the Country Meadows acquisition agreement as required by D.97-03-028. Cal Water has collected about $259,308 from these customers.

4. Cal Water acquired Olcese on October 29, 1999, and since that time has provided public utility water service to the former Olcese customers at Bakersfield District rates. The cost of serving these customers and revenue received from them were included in the next Bakersfield GRC, D.01-08-039.

5. Cal Water provided Indian Springs and Country Meadows customers with capital investment, experienced staff, enhanced response time, and state-certified laboratory services.

6. The Salinas District revenue requirement did not provide for the costs of serving the Indian Springs or Country Meadows customers, or include the revenue to be collected from these customers as an offset to district costs.

7. ORA recommended a 9.1% ROE for all districts in the Cal Water GRC, including the Salinas District. The Joint Recommendation provided for 9.7%, and the Commission adopted that amount in D.03-09-021 for all districts in the consolidated proceeding, other than Salinas.

8. Unmetered water service at flat rates does not encourage customers to conserve water.

9. Cal Water's offenses in failing to file the three acquisition agreements and obtain rate approval in County Meadows and Indian Springs are severe.

10. PG&E's electric system rate base determined in D.91106 was about 150 times greater than Cal Water's Salinas District rate base.

11. The timeline in Appendix B shows an on-going compliance deficiency that should have been remedied in the first instance.

12. Cal Water failed to prevent and detect its violations.

13. Cal Water has substantial financial resources.

14. The potential fine calculated by including each day of the on-going violations as a separate offense is disproportionate to the harm.

15. The Commission's guidelines on fines for violations of the Public Utilities Code and Commission decisions support a fine of $15,000 for each of three unauthorized acquisitions and the two unauthorized rates by Cal Water reviewed in today's decision.

16. No material facts related to the unauthorized acquisitions are in dispute.

Conclusions of Law

1. Cal Water and ORA agreed to and the Commission approved a set of filing requirements in D.97-03-028 for Cal Water's acquisition of non-Commission regulated water systems.

2. Cal Water did not comply with those requirements when acquiring Indian Springs, Country Meadows, and Olcese.

3. Section 702 requires that public utilities comply with decisions of the Commission.

4. The Public Utilities Code requires that all rates charged by a public utility must be filed with and approved as just and reasonable by the Commission. The Commission approved Cal Water's reformed acquisition agreements and rate plan for the Indian Springs and Country Meadows customers in Res. W-4462.

5. In D.99-10-064, the Commission held that it must approve rates charged by a utility that acquires a water system.

6. Prior to Res. W-4462, all amounts collected by Cal Water from the former Indian Springs and Country Meadows customers were collected in violation of the Public Utilities Code.

7. The Indian Springs and Country Meadows customers received the benefit of their agreements with Cal Water, and should not be awarded reparations.

8. A negative adjustment to ROE is better suited to the facts of this case than reparations.

9. Water rates should provide appropriate incentives for conservation of water.

10. The Salinas District ROE, as compared to certain other Cal Water districts, should be adjusted downward by 50 basis points to 9.2%.

11. Because Cal Water charged approved rates to the Olcese customers, reparations are not necessary in the Bakersfield District.

12. Consistent with the Commission's guidelines for assessing fines for violations of the Public Utilities Code and Commission decisions, Cal Water should be fined $15,000 for each of its three unauthorized acquisitions and $15,000 each for the two systems where it charged unauthorized rates.

13. The rate increase for the Salinas District included in this proceeding should be approved with a ROE of 9.2%.

14. Today's order should be made effective immediately.

FINAL ORDER

IT IS ORDERED that:

1. The Joint Recommendation between California Water Services Company (Cal Water) and the Office of Ratepayer Advocates, as modified by Decision (D.) 03-09-021, is adopted for the Salinas District, with the exception that the return on equity (ROE) for the Salinas District shall be 9.2%.

2. No later than 60 days after the effective date of this order, Cal Water shall pay a fine of $75,000 by check payable to the California Public Utilities Commission for deposit to the General Fund, and submitted to the Commission's Fiscal Office at 505 Van Ness Avenue, Room 3000, San Francisco, CA 94102. The number of this decision shall be included on the face of the check.

3. Cal Water shall comply with Ordering Paragraphs 2-10 and 12-14 of D.03-09-021.

4. Cal Water is authorized to file in accordance with General Order (GO) 96-A or its successor, and to make effective on not less than five days' notice, tariffs for the Salinas District containing the test year 2003, which shall reflect a 9.2% ROE. The revised rates shall apply to service rendered on or after the tariffs' effective date.

5. An advice letter for the authorized rate increase for attrition year 2004 may be filed in accordance with GO 96-A any time after the 2003 rates go into effect. The filing shall include appropriate work papers. The increase shall be the amount authorized herein, or a proportionate lesser increase if Cal Water's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the adopted change to this pro forma test, for the most recent recorded 12 months, exceeds 8.64%. The advice letter shall be reviewed by the Commission's Water Division for conformity with this decision including the applicable provisions of the Joint Recommendation, and shall go into effect upon Water Division's determination of compliance, not earlier than 30 days after filing. The tariffs shall be applicable to service rendered on or after the effective date. Water Division shall inform the Commission if it finds the proposed increase does not comply with this decision or other Commission reqirements.

6. An advice letter for the authorized rate increase for attrition year 2005 may be filed in accordance with GO 96-A no earlier than November 1, 2004. The filing shall include appropriate work papers. The increase shall be the amount authorized herein, or a proportionate lesser increase if Cal Water's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the adopted change to this pro forma test, for the 12 months ending September 30, 2004, exceeds 8.64%. The advice letter shall be reviewed by the Commission's Water Division for conformity with this decision, including the applicable provisions of the Joint Recommendation, and shall go into effect upon Water Division's determination of compliance, not earlier than January 1, 2005 or 30 days after filing, whichever is later. The tariffs shall be applicable to service rendered on or after the effective date. Water Division shall inform the Commission if it finds the proposed increase does not comply with this decision or other Commission requirements.

7. This proceeding is closed.

This order is effective today.

Dated at San Francisco, California.