VI. Comments on Proposed Decision

The proposed decision of the ALJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the rules of Practice and Procedure.

ORA and Valencia filed comments separately and joint reply comments. ORA requested that Valencia consult with ORA as well as the Water Division prior to Valencia filing its revised low-income tariff proposal. Today's decision has been modified to include this change.

In the comments and reply comments, Valencia pointed out several minor textual errors that required changes, all of which have been incorporated. Valencia also raised a substantive issue on the attrition calculation. Valencia, ORA, and the Water Division conferred and agreed on the proper attrition calculation. It is set out below:

Attrition Calculation

Attrition is a change in the earning (rate of return on rate base) of a utility from first test year to the second test year when utility's existing (present) tariff rates stay the same. The attrition consists of two components: operational and financial. They are calculated as follows:

Operational Attrition. Calculate the rate of return on rate base (ROR) for the first test year using the present (existing) tariff rates. Calculate the ROR for the second test year using the same present tariff rates as used for the first test year. Compute the difference by subtracting the second test year ROR from the first test year ROR. Multiply the difference by the net-to-gross multiplier and the second test year rate base to arrive at the attrition allowance.

Financial Attrition. The financial attrition is calculated by subtracting the second test year's total weighted cost of debt and equity from the attrition year's total weighted cost of debt and equity.

The attrition allowance is computed by adding the operational and financial attrition amounts. The attrition allowance could be positive or negative.