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

As noted in the introduction, Cal-Am entered into a separate settlement agreement with Thousand Oaks. This agreement, which incorporates by reference the revenue changes agreed to between Cal-Am and ORA, was the subject of extensive questioning at the August 16 hearing and is attached to this decision as Appendix B.

The most significant provisions of the settlement with Thousand Oaks concern Cal-Am's agreement to exchange its Conejo Oaks service area for the Academy service area currently served by City. The idea of an exchange was suggested by Thousand Oaks in the direct testimony of Donald Nelson (Ex. 16, p. 5), but rejected by Cal-Am in Benjamin Lewis's rebuttal testimony (Ex. 11, p. 8). However, in their settlement agreement, City and Cal-Am have agreed to undertake the steps that would be necessary for such an exchange of territories to be effective for all purposes on January 1, 2008, the date that new rates approved in the Village District's next rate case are expected to take effect. These steps include approval of the exchange by the Thousand Oaks City Council and this Commission. (Thousand Oaks Settlement Agreement, ¶¶ 3.1 and 3.2.) In addition, Cal-Am and City agree that within three months after approval of their settlement agreement, they will agree upon a transition plan that includes milestones necessary to make the exchange come about. These milestones include:

· exchange of information on improvements, water sales, etc. within the two systems;

· a physical assessment and inventory of the plant of the Conejo Oaks and Academy water systems;

· identification of and scheduling for improvements to be constructed in the Conejo Oaks service area by City in order to provide service that meets the fire flow and domestic service requirements of Thousand Oaks;

· community meetings to describe the proposed exchange and obtain the input of affected residents on it;

· an analysis of the need for interim improvements to eliminate minimum flow penalties in the Conejo Oaks service area, with the understanding that any such interim improvements would be constructed at Cal-Am's option; and

· itemization of the actions necessary to transfer all interests in the Academy Mutual Water Company to Cal-Am. (Id., ¶ 3.4.)

Cal-Am and City also agree that prior to consummation of the exchange, they will operate and maintain the two service areas "with normal and customary practices and care." (Id., ¶ 3.6.)

At the August 16 hearing, witnesses for both Cal-Am and City answered questions about the exchange agreement. First, Donald Nelson noted that the staffs of Cal-Am and Thousand Oaks have been discussing the possibility of an exchange for nearly a decade, so each is familiar with the other's system. Thus, even though it is theoretically possible under the language of ¶¶ 3.1-3.5 that the City Council of Thousand Oaks could get cold feet and not approve the exchange, Nelson considered that to be very unlikely. (Tr. at 82.) He also acknowledged that the intent of the settlement agreement is that if such problems do arise, they will be dealt with in the future and will not constitute grounds for rescinding or modifying the settlement in this rate case. (Id. at 86-87.)

Benjamin Lewis testified that although there are references in Nelson's testimony to penalties of $11,000 per month being imposed on Cal-Am because of unacceptably low fire flows in the Conejo Oaks area,¹² this figure is not correct. According to Lewis, the actual amount of the penalties is approximately $7000 per year, and the explanation for the difference is that when Nelson was preparing his testimony, he was unaware of certain improvements by Cal-Am that have improved fire flows in the area. (Id. at 86.)

A second important part of the settlement agreement between City and Cal-Am is the latter's agreement to improve the performance of its national call center, which is located in Alton, Illinois. As noted above, many customers who spoke at the PPH complained about the call center's performance with respect to the water main break that occurred on June 28, 2004.

Pursuant to D.02-12-068, Cal-Am is required to make quarterly reports to this Commission concerning the performance of its call center for the so-called Western Region, which is comprised of California, Arizona, Hawaii, New Mexico and Texas. The settlement agreement states that hardware and software improvements are now being made that will allow the company to provide state-specific data on call center performance by the end of the first quarter of 2005. (Thousand Oaks Settlement Agreement, ¶ 10.1.) Once it has the capacity to do so, Cal-Am proposes to supplement its quarterly filings with the Commission to provide California-specific data on the information required by the quarterly reports; i.e., the number of calls answered within 30 seconds, the number of calls lost within 30 seconds, and first-call effectiveness. (Id., ¶ 10.2.) The company has also agreed to develop a program to provide information to Thousand Oaks on the call center's performance, and to "follow up and resolve individual call center service complaints" promptly when they are made. (Id., ¶ 10.3.)

A third important aspect of the settlement agreement between Thousand Oaks and Cal-Am is the latter's agreement to accept ownership and control of the pumping station in the Oakview Estates condominiums on Warwick Avenue, which Nelson claimed suffer from inadequate water pressure. (Id., ¶¶ 8.1-8.2; Nelson Direct Testimony, Ex. 16, p. 6.) In his rebuttal testimony on behalf of Cal-Am, Lewis noted that when this project was constructed in the 1970s, the company did not think it was fair to pass on to its other customers the high long-term maintenance and power costs of the pumping station, which the project's high elevation clearly required. Accordingly, Cal-Am entered into an agreement with the condominium developer requiring the Oakview Condominium Association to own and maintain the pumping station. (Ex. 11, p. 9.) In the settlement agreement, the parties note that additional construction in the area will be the key to resolving the cost and water pressure problems on Warwick Avenue:

"The Parties recognize that the solution to the current water pressure and fire flow issues will come from the agreements with the owners/developers of projects fronting Warwick Avenue. The Parties will negotiate with the owners/developers of projects fronting Warwick Avenue . . . to arrive at a permanent water system that will deliver fire flow and domestic pressures meeting City requirements to the above-mentioned projects, as well as to the apartment building at 951 Warwick Avenue." (Thousand Oaks Settlement Agreement, ¶ 8.2.)

Under other provisions of the settlement agreement, Cal-Am also agrees to do the following to address other issues that were raised either in City's protest or at the June 29 PPH: (1) undertake a good-faith effort to conclude a new franchise agreement with Thousand Oaks within six months; (2) draft a new "will serve" letter detailing the extent of Cal-Am's obligation to serve the Oaks Mall; (3) give City a full opportunity to comment on Cal-Am's new Comprehensive Planning Study, the company's master plan for capital improvements; and (4) work with the Los Robles Regional Medical Center so that fire flow requirements for the hospital's new medical facilities and parking structure can be met at reasonable cost. (Id., ¶¶ 5, 7, 9 and 11.)