7. Discussion

Taken together, the two settlement agreements before us represent an all-party settlement. In D.92-12-019 (46 CPUC2d 538), the Commission held that all-party settlement proposals will not be approved unless (1) the settlement commands the unanimous sponsorship of all active parties, (2) the sponsoring parties are fairly reflective of the affected interests, (3) no term of the settlement contravenes statutory provisions or prior Commission decisions, and (4) the settlement conveys sufficient information to permit the Commission to discharge its future regulatory obligations with respect to the parties and their interests. (46 CPUC2d at 550-551.) In addition, Rule 51.1(e) precludes the Commission from approving a settlement or stipulation unless it is reasonable in light of the whole record, consistent with law, and in the public interest.

Except for the provisions adopting ORA's proposal for low-income ratepayer assistance, we have no difficulty in concluding that the agreements before us meet these tests. All of the active parties participated in the negotiations that led to the agreements, and the two agreements - which are unopposed -- cross-reference each other. Moreover, apart from the provisions adopting ORA's low-income assistance program, we believe the agreements represent a reasonable resolution of all the issues in this case. We also note that with respect to the issues raised by City and the customers who spoke at the June 29 PPH, the Thousand Oaks Settlement Agreement appears to offer imaginative solutions to problems that have frustrated City and its residents for some time.

As noted in the summary of Cal-Am's agreement with ORA, the stipulations relating to cost-of-capital have a larger dollar effect than any other provision in the settlement agreements. For example, the stipulated amounts account for about half of the $641,000 difference between the revenues that Cal-Am originally requested for the Village District in 2005 and what the parties ultimately agreed to. The 10.10% ROE that the parties agreed upon is only six basis points higher than the ROE we recently approved for Cal-Am's Los Angeles District in D.04-09-041 (mimeo. at 4),¹³ and is 40 basis points less than the ROE Cal-Am originally requested in these applications. Thus, we have no difficulty in concluding that the cost-of-capital provisions in the ORA settlement agreement are reasonable and should be approved.

We also find reasonable the agreements between Cal-Am and ORA with respect to the individual issues raised by the Coronado application. In particular, we agree that Cal-Am should be free to seek recovery in the future of its participation in the future water supply study for San Diego County being promoted by MWD, and that the 0.54% water loss factor and memorandum account to record any additional water supply billing by San Diego are reasonable. We also agree that under the circumstances of the Coronado District, it is reasonable to show franchise fees as a separate line item on customer bills.¹⁴

As our description of the settlement between Cal-Am and Thousand Oaks indicates, many of the issues for the Village District involve the reasonableness of capital expenditures needed to deal with problems such as low fire flows and water pressure. We accept ORA and Cal-Am's agreements with respect to these issues, and also agree with the treatment these parties have agreed upon for dealing with the costs of replacing the 1.9 miles of 12-inch main serving the Los Pasos area.

We also commend Thousand Oaks and Cal-Am for reaching an agreement-in-principle to exchange the Conejo Oaks and Academy service areas. This exchange (which the parties will have three years to pursue) will not only enable both Cal-Am and City's municipal water system to serve contiguous territories, but will also - as noted in ¶ 16.3 of the settlement agreement with ORA -- save Cal-Am's ratepayers the expense of upgrading the pressure regulating system at the El Dorado turnout. We hope that Cal-Am and City make steady progress in deciding whether to go forward with the proposed exchange, and when they are ready to proceed, we look forward to receiving Cal-Am's application for approval.

We are also pleased with and will approve the provisions of the Thousand Oaks settlement that relate to improving the reporting on, and the performance of, the national call center in Alton, Illinois. As noted above, the settlement agreement states that Cal-Am expects to have hardware and software improvements in place by March 31, 2005 that will result in improved performance by the call center.

The customer complaints expressed at the June 29 PPH indicate that improvement in the call center's performance is needed. Our attitude toward the improvements referred to in ¶¶ 10.1 and 10.3 of the Thousand Oaks agreement is the same as the view expressed on behalf of City by Donald Nelson:

"I think from the city's point of view, what we are looking for here is improvement in the system. We understand that Cal-Am may have some limitations as to what they can do. And what we are looking forward to is improvement. And these conditions in the settlement agreement provide an opportunity for Cal American to demonstrate that to us. (Tr. at 108.)

The heart of the hardware improvements Cal-Am is making are (1) the installation of global positioning system (GPS) devices in Cal-Am's service vehicles, coupled with (2) the use of a "toughbook" to ensure that service personnel responding to trouble calls have all of the relevant information when they arrive. At the August 16 hearing, Benjamin Lewis described the interaction of these systems as follows:

"Also we are implementing our Service First Program. That is a program in which we are going to have a GPS located in our company vehicles such that when a customer calls into the call center and there is a main break, we will have the ability to know where that particular service main is located and actually dispatch them directly to that main break more efficiently. That will happen first quarter 2005 . . .

* * *

"Also, what is going to happen is they are going . . . to have what we refer to as a Toughbook. And the Toughbook is what you see UPS carriers use which is a pad, electronic and wireless such that when the call center sends out a service order, it is going to go directly to that Toughbook. They will be able to see all their information pertinent to that customer.

"So when they arrive at the customer's home, . . . they will have everything in front of them in terms of what the customer needs are, the name, the location and actually what is the request of the customer. (Tr. 111-112.)

We agree that these improvements appear to represent a good start toward addressing the customer service problems described at the PPH. We will look to these measures, as well as the improved reporting referred to in ¶ 10.2 of the Thousand Oaks settlement agreement, in evaluating the quality of customer service in Cal-Am's next rate case for the Village District.

As noted above, the only provisions that we cannot accept in the two settlement agreements before us are the provisions adopting ORA's proposal for low-income ratepayer assistance. Under ORA's proposal, Cal-Am customers with incomes not exceeding 175% of the federal poverty guidelines would receive a 15% discount on their bills. The discount would also be available to low-income consumers residing in multi-unit complexes or mobile home parks where the Cal-Am customer is the landlord, but tenants are billed for their individual water usage through sub-meters. The 15% discount would not be available to low-income consumers living in multi-unit complexes without individual sub-metering. ORA's proposal, unlike Cal-Am's, also does not require any conservation measures on the part of customers. (Ex. 12, ¶¶ 13.11-13.18; Ex. 13, ¶¶ 9.24-9.30.)

We recently disapproved an identical low-income assistance proposal in D.04-09-041, our decision on Cal-Am's application for its Los Angeles District, A.03-07-036. In that decision, we began by noting that the ORA proposal the parties had agreed upon suffered from the same infirmities that had caused us to reject a low-income assistance program for the San Gabriel Water Company. We described the infirmity as follows:

"[T]he rate would not be offered to users living in apartment buildings and mobile home parks. These tenants would not receive the rate because they are not customers of the utilities but instead pay for utilities as part of the rent or lease amount. Because many low-income individuals and families live in buildings or facilities with master meters, Cal-Am's low-income rate would presumably not be available to a significant portion of its low-income customers.

"The settlement [in A.03-07-036] does not address how the shortfall from the low income discount would be allocated to other customers, deferring the issue and permitting the shortfall to be tracked in a memorandum account. The uncertainty regarding how the shortfall would be recovered imposes an additional risk on low income individuals and families who are tenants living in master-metered buildings or facilities. Those tenants may ultimately pay higher rates because of the low income discount if the shortfall from the discount is allocated to master meter customers and those customers may pass along the higher utility rates to their low-income tenants.

"We also share [Cal-Am's] concern that providing discounts to any customer merits consideration of more aggressive water conservation efforts. In fact, the ability to conserve water - and thereby reduce utility bills - without compromising the quality of life should be one element of a program to meet the needs of low-income customers. Although we applaud the parties' efforts to settle the case, these types of issues are not addressed in ways that satisfy our interest in promoting the interests of those who are similarly-situated, in this case individuals and families on limited incomes." (Mimeo. at 6-7.)

All of the shortcomings mentioned in this quotation also apply to the low-income assistance program adopted in the settlement agreement here between Cal-Am and ORA.¹⁵ For the reasons stated in D.04-09-041, we decline to adopt these provisions of the ORA settlement agreement. However, as was true in D.04-09-041, we note that rejecting these low-income assistance provisions will not affect the rates resulting from the settlement, because "the shortfall from the [low-income] rate was not allocated to other classes of customers, and would have been included in future rates." (Id. at 7.)