STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

November 16, 2004 Agenda ID #4069

Ratesetting

TO: PARTIES OF RECORD IN APPLICATIONS 04-03-023, A04-03-024

This is the proposed decision of Administrative Law Judge (ALJ) McKenzie, previously designated as the principal hearing officer in this proceeding. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180 a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days beforehand. When an RDM is held, there is a related ex parte communications prohibition period.

The Commission may act at the regular meeting, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on communications.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:jva

ALJ/MCK/jva DRAFT Agenda ID #4069

Ratesetting

Decision PROPOSED DECISION OF ALJ MCKENZIE (Mailed 11/16/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of California-American Water Company (U 210 W) for an order authorizing it to increase it rates for water service in its Coronado District to increase revenues by $352.9 or 2.86% in the year 2005, to decrease revenues by ($43.1) or (0.34%) in 2006, and to decrease revenues by ($28.4) or (0.22%) in 2007.	Application 04-03-023 (Filed March 22, 2004)
In the Matter of the Application of California-American Water Company (U 210 W) for an order authorizing it to change its rates for water service in its Village District to decrease revenues by ($1,254.0) or (6.36%) in the year 2005, to decrease revenues by ($24.9) or (0.13%) in 2006, and to increase revenues by $4.7 or 0.03% in 2007.	Application 04-03-024 (Filed March 22, 2004)

OPINION RESOLVING GENERAL RATE CASES

(See Appendix C for List of Appearances)

Table of Contents

Title Page

OPINION RESOLVING GENERAL RATE CASES 11

1. Summary 22

2. The Applications 33

3. The Coronado and Village District Systems 33

4. Procedural History 55

5. The Settlement Agreement Between ORA and Cal-Am 99

A. Cost of Capital 99

B. Noteworthy Provisions Concerning Coronado in the
ORA Settlement Agreement 1111

C. Noteworthy Provisions Concerning the Village District in the
ORA Settlement Agreement 1313

D. The Parties' Settlement Concerning Rate Assistance for
Low-Income Customers 1515

6. The Settlement Agreement Between Cal-Am and Thousand Oaks 1818

7. Discussion 2222

8. Comments on Proposed Decision 2828

9. Assignment of Proceeding 2828

Findings of Fact 2828

Conclusions of Law 3131

ORDER 3232

Appendix A

Appendix B

Appendix C List of Appearances

OPINION RESOLVING GENERAL RATE CASES

1. Summary

This opinion adopts, except for a proposed low-income discount, two settlement agreements entered into by applicant, the California-American Water Company (Cal-Am), with the other parties to these proceedings. The first agreement is with the Commission's Office of Ratepayer Advocates (ORA) and resolves all of the issues raised in ORA's protests of these two applications; it is attached to this decision as Appendix A. The second agreement is between Cal-Am and the City of Thousand Oaks (Thousand Oaks or City). Thousand Oaks is the principal geographic area served by Cal-Am's Village District, and City was a protestant in Application (A.) 04-03-024. The settlement agreement with Thousand Oaks, which is attached to this decision as Appendix B, resolves all of the issues raised by the City.

Pursuant to the settlement agreements, Cal-Am is authorized to change the rates for its Coronado District so as to increase revenues by $132,700, or 1.07%, in 2005; to increase revenues by $10,600, or 0.08%, in 2006; and to increase revenues by $10,700, or 0.09%, in 2007. For the Village District, Cal-Am is authorized to change rates so as to reduce revenues by $1,892,200, or 9.6%, in 2005; to increase revenues by $42,100, or 0.23%, in 2006; and to increase revenues by $42,000, or 0.23%, in 2007.

Pursuant to the requirements of Decision (D.) 02-12-068 (the decision whereby we conditionally approved a settlement agreement transferring control of Cal-Am's corporate parent to RWE Aktiengesellschaft), ¹ the rate decrease for the Village District will go into effect on January 1, 2005, but the increases for that district authorized for 2006 and 2007 will not go into effect until January 1, 2007 and January 1, 2008, respectively. For the Coronado District, the rate increase authorized for 2005 will go into effect on January 1, 2006, the increase authorized for 2006 on January 1, 2007, and the increase authorized for 2007 on January 1, 2008.

For both the Coronado and Village Districts, the adopted rates are based on a return on rate base (ROR) of 8.46%, and a return on common equity (ROE) of 10.10%.