6. Assignment of Proceeding

Commissioner John A. Bohn was assigned this proceeding initially; upon the completion of his term, the proceeding was assigned on January 12, 2011 to President Michael R. Peevey. Gary Weatherford is the assigned ALJ.

1. Damage incurred from the MTBE contamination has left Cal Water with a need to make expenditures for the construction or purchase of MTBE treatment and replacement facilities.

2. Cal Water initiated this proceeding with Application 09-07-011 for an order authorizing the allocation of net proceeds from MTBE groundwater contamination litigation.

3. Phase I of this proceeding culminated in D.10-04-037, issued on April 26, 2009, under which Cal Water was ordered to use all of a specified amount of contamination proceeds for the construction or purchase of MTBE treatment and replacement facilities.

4. Pursuant to D.10-04-037, Cal Water is applying contamination proceeds to treatment and remediation through a memorandum account, treating the resulting replacement plant as contribution in aid of construction.

5. Phase II of this proceeding awaited the outcome of the contamination proceeds rulemaking R.09-03-014, which produced D.10-10-018 (October 14, 2010) and culminated in D.10-12-058 (December 16, 2010).

6. The issues previously set for resolution in Phase II of this proceeding either have been recently resolved by actions of Cal Water and the generic contamination proceeds rulemaking (D.10-10-018 and D.10-12-058), are not ripe for resolution or can be more efficiently addressed within a future GRC. The status of each of the eight issues identified in the September 28, 2009 Assigned Commissioner's Ruling and Scoping Memo in this proceeding is as follows:

a. Have any of the MTBE Contamination Settlement proceeds already invested in utility plant been included in rate base and recovered in present rates? This issue has been resolved by the joint assurance of the parties Cal Water and DRA that remediation-related plant items have been removed from rate base.

b. What have been the relevant and comparative risks assumed by ratepayers and shareholders, respectively, concerning the MTBE contamination of Cal Water's water supply and related litigation? Resolution of this issue can await a future GRC occurring after a determination that litigation has concluded and that all replacement capital improvements have been completed.

c. How should Cal Water account for treatment and replacement plant investments related to MTBE contamination? This issue was resolved by D.10-10-018, which ordered that the accounting treatment shall be as contributions in aid of construction.

d. How should Cal Water account for future plant investments made from MTBE settlement proceeds received to date and to be received, respectively? This issue likewise was resolved by D.10-10-018, which ordered that the accounting treatment shall be as contributions in aid of construction.

e. How should any MTBE settlement proceeds arising from detections after April 12, 2008, be expended and/or invested? Available funds from such detections can be ordered to be used for the construction or purchase of MTBE treatment and replacement facilities as needed in accordance with the MTBE Memorandum Account and the agreement of the parties.

f. How should Cal Water's investment of MTBE contamination proceeds in utility plant be allocated among its 24 districts? Cal Water has been making district-by-district investments in remediation from available MTBE contamination proceeds on the basis of need, consistent with the order in the Phase I, D.10-04-037 at Ordering Paragraph 4, requiring that the available net proceeds "must all be expended for the construction or purchase" of treatment and replacement facilities. Issues that arise concerning investments in remediation within and across Cal Water's districts can be addressed in Cal Water's periodic company-wide GRC.

g. Does Table 1 of John Tootle's prepared testimony relative to MTBE contamination proceeds accurately present the amount invested in treatment and replacement plant, and reasonably estimate the additional investments that should be made in treatment and replacement plant? The accuracy of Cal Water's calculations and estimates of amounts invested, and to be invested, in remediation can be addressed in Cal Water's periodic company-wide GRC rather than in this proceeding.

h. How should the term "net proceeds" be defined and applied in resolving the foregoing Phase 2 issues? The term "net proceeds" was defined in D.10-10-018 and is applicable here.

1. Evidentiary hearings are not needed for Phase II of the proceeding.

2. The Phase II Memorandum of Understanding between Cal Water and DRA (attached as Appendix A), combined with the outcome in the contamination proceeds rulemaking (D.10-10-018 and D.10-12-058), provides a reasonable and just basis for a decision closing this proceeding.

3. The proceeding should be closed as that outcome is reasonable in light of the whole record, consistent with law, and in the public interest.

ORDER

IT IS ORDERED that:

1. Available methyl tertiary-butyl ether (MTBE) settlement proceeds arising from detections after April 12, 2008, shall be used by California Water Service Company (Cal Water) for the construction or purchase of MTBE treatment and replacement facilities as needed in accordance with the MTBE Memorandum Account and the Memorandum of Understanding between Cal Water and the Division of Ratepayer Advocates.

2. The following Phase II issues, identified in the September 28, 2009 Assigned Commissioner's Ruling and Scoping Memo and that remain unresolved, shall be deferred to a future General Rate Case of the California Water Service Company (Cal Water):

· What have been the relevant and comparative risks assumed by ratepayers and shareholders, respectively, concerning the methyl tertiary-butyl ether (MTBE) contamination of Cal Water's water supply and related litigation?

· How should Cal Water's investment of MTBE contamination proceeds in utility plant be allocated among its 24 districts?

· Does Table 1 of John Tootle's prepared testimony relative to MTBE contamination proceeds accurately present the amount invested in treatment and replacement plant, and reasonably estimate the additional investments that should be made in treatment and replacement plant?

California Water Service Company shall present those issues at its next General Rate Case (GRC), and subsequent GRCs as relevant, for a determination of whether any or all of those issues are ripe for resolution.

3. Hearings are no longer necessary.

4. Application 09-07-011 is closed.

This order is effective today.

Dated March 24, 2011, at San Francisco, California.

D1103043 Appendix A

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