3. Background and Procedural History

On July 31, 2001, Cal Water filed its Notices of Intention to File General Rate Increase Applications in each of the listed districts. Customers were advised of the proposed rate increase through publication and bill inserts. On September 21, 2001, Cal Water filed the above-captioned applications seeking rate increases in each district to produce an overall rate of return of 9.41% in 2002, 9.46% in 2003, 2004, and 2005. These rates of return produce a return on equity of 10.75% in each of the four years. Cal Water stated that it considered these returns on rate base as the minimum rates necessary to enable it to maintain its credit rating, obtain new capital at a reasonable cost and provide a fair and reasonable return on equity.

Cal Water also stated that the principal factor behind its rate increase requests is that the additional revenue generated by increased numbers of customers or increased consumption is more than offset by the resulting increases in costs to serve such usage.

Notice of filing of the applications appeared in the Commission's Daily Calendar on October 18 and 19, 2001. In Resolution ALJ 176-3074, the applications were preliminarily categorized as ratesetting.

On November 19, 2001, ORA filed its protests to each of the applications. In each protest, ORA stated that it was conducting discovery, investigation, and analysis to address issues such as whether the estimated levels of revenues, expenses and rate base were just and reasonable and in the public interest.

On December 11, 2001, the North Ranch Country Club (North Ranch) filed its protest of the application for the Westlake District, A.01-09-074. North Ranch contended that Cal Water's requested increase in reclaimed water rates was excessive and might result in reclaimed water customers subsidizing other customer classes.

The assigned ALJ held a Prehearing Conference (PHC) on November 26, 2001, February 4, 2002, and April 22, 2002. At the first two PHCs, ORA and Cal Water resolved outstanding discovery issues and set a procedural schedule for the remainder of the proceeding. At the April PHC, the parties resolved procedural issues related to the participation of the Aglet Consumer Alliance (Aglet).

On March 25, 2002, the Assigned Commissioner issued a ruling consolidating the applications into one proceeding, determining that a hearing was necessary, and designating the assigned ALJ as the principal hearing officer.

The Commission held a Public Participation Hearing in each of the captioned 13 districts, including one in each of three smaller districts comprising Cal Water's Northern District, for a total of 15. The members of the public who offered comments generally opposed the magnitude of the proposed increases, particularly in this time of economic downturn. One commenter sought information and notices that were understandable to members of the public and not full of acronyms. Customers on metered use charged that customers who pay a flat rate regardless of usage were wasting water. Certain commenters noted that Cal Water's income from unregulated operations was not included in calculating rate of return, and that the number of unregulated customers had more than doubled from 1997 to 2000. Customers also questioned Cal Water's plans for expanding its service territory and how Cal Water would meet the needs of these new customers without increasing rates for existing customers. The existence of and costs for treating contaminated water sources also drew several comments.

On March 29, 2002, ORA distributed its Reports for each district in which Cal Water had requested rate increases. ORA recommended decreases in rates for some of the districts and modest increases for others. A comparison of the rate increases requested by Cal Water and ORA's recommendations is set out in Attachment A. On March 27, 2002, North Ranch distributed its direct testimony on the issue of reclaimed water rates in the Westlake District.

Evidentiary hearings were held in San Francisco April 18, 19, 22, 23, 25, and 26, 2002. During the hearings, ORA and Cal Water were able to resolve their differences on many issues and to present a Joint Recommendation. The Joint Recommendation is Attachment B. The increases provided by the Joint Recommendation are shown in Attachment A. Aglet joined in certain portions of the Joint Recommendation, and took no position or opposed other portions. Also during the evidentiary hearings, all parties reached agreement on a Reclaimed Water Rate Joint Recommendation. (See Attachment C.)