ALJ/MAB/sid Mailed 5/14/2003

Decision 03-05-030 May 8, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of Valencia Water Company (U 342 W), a corporation, for an Order Authorizing It to Increase General Rates Charged for Water Service in Order to Realize Increased Annual Revenues of $2,496,685 in Test Year 2003, $143,286 in Test Year 2004, and $43,439 in Attrition Year 2005, to Apply a Surcharge Calculated to Generate a Further $614,737 in Year 2003 Revenues, to Establish a Low Income Ratepayer Assistance Program, and to Make Further Changes and Additions to Its Tariff for Water Service.

Application 02-05-013 (Filed May 3, 2002)

Nossaman, Guthner, Knox & Elliott, LLP, by

Martin A. Mattes, Attorney at Law, and

Robert J. DiPrimio, for Valencia Water Company,

applicant.

Edwin Dunn, for himself, interested party.

Michael A. Kotch, for Santa Clarita Organization

for Planning the Environment, and Lynne Plambeck,

for Sierra Club, intervenors.

Natalie Wales, Attorney at Law, and Daniel R. Paige,

for the Office of Ratepayer Advocates.

OPINION AUTHORIZING

MODIFICATIONS IN RATES AND REVENUE

OPINION AUTHORIZING

MODIFICATIONS IN RATES AND REVENUE

I. Summary

In this general rate case, we find that Valencia Water Company (Valencia) is experiencing customer growth of approximately 4% per year as well as modest increases in costs. In the first Test Year, a 1.12% increase in customers' rates is necessary to achieve just and reasonable rates. In the second Test Year and the attrition year , however, rate decreases are required due to projected customer growth:

Rate Change Revenue Change

Test Year 2003	1.12%	$165,046
Test Year 2004	-1.28%	-$200,500
Attrition Year 2005	-1.16%	-$178,900

These revenue changes reflect a 9.72% return on equity, which results in a return on rate base of 9.2% for the Test Years. Valencia's proposed Low Income Ratepayer Assistance (LIRA) program is rejected due to failure to meet applicable standards requiring a well-supported and thoughtfully designed program. We do, however, order Valencia to file, within 180 days of the effective date of this order, a revised low-income discount proposal that addresses the matters discussed in this order.