D0310002/A0207025 ATTACHMENTS B-E

ALJ/JJJ/jva Mailed 10/3/2003

Decision 03-10-002 October 2, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of BAKMAN WATER COMPANY
(U 219 W) for Authority to: (1) Remove the Proceeds of Water Contamination Lawsuits from Contributions-In-Aid-of-Construction, (2) Increase Rate Base, and (3) Recover Increased Revenue Requirements in Rates.

Application 02-07-025

(Filed July 9, 2002)

OPINION ON BAKMAN WATER COMPANY'S
GENERAL RATE CASE FOR TEST YEAR 2000

(See Appendix A for Appearances)

TABLE OF CONTENTS

Title Pages

OPINION ON BAKMAN WATER COMPANY'S GENERAL RATE CASE
FOR TEST YEAR 2000 3 3

I. Summary 3 3

II. Bakman's Application 3 3

III. Contaminated Wells and Their Effect on Rates 4 4

IV. Procedural Background 6 6

V. Discussion 6 6

A. What is the Appropriate Ratemaking Treatment of the Lawsuit Proceeds? 6 6

1. Gallo Lawsuit Proceeds 6 6

2. Shell Oil Lawsuit Proceeds 8 8

a) Commission Precedent 8 8

b) CIAC 9 9

c) Bakman's Risks 10 10

(1) Loss of Value of the Wells 10 10

(2) Remediation and Repair Costs Were Uncertain 10 10

(3) Legal Expenses Varied From the Amounts Included in Rates 10 10

(4) Eventual Settlement Proceeds Were Uncertain 11 11

(5) Financing of Remediation and Repair Could Affect Utility
Cash Flows 12 12

(6) Contamination Events Underlying the Lawsuits Could Recur or Spread After the Lawsuits Settled 12 12

d) Ratepayer's Risks 13 13

(1) SDWBA Loan Surcharge 13 13

(2) Legal Expenses 13 13

(3) Return on Bakman's Investments 14 14

e) Balancing the Relative Risks to Determine the Appropriate
Allocation of the Shell Oil Lawsuit Proceeds 14 14

3. Ratemaking Treatment Regarding Shell Oil Lawsuit Proceeds 16 16

a) Small Water Company GRCs 16 16

b) Practical Realities 17 17

c) Discussion 18 18

B. Other Issues 20 20

VI. Comments on the Proposed Decision 21 21

A. Adjustments to CIAC Related to the Shell Oil Lawsuit Proceeds 22 22

B. Other Modifications 23 23

VII. Assignment of Proceeding 23 23

Findings of Fact 23 23

Conclusions of Law 25 25

ORDER 27 27

Appendix A Appearances
Appendix B Summary of Earnings and Revised Schedules

Appendix C New Tariff Sheets

Appendix D Rate Comparisons

Appendix E Adopted Quantities

OPINION ON BAKMAN WATER COMPANY'S
GENERAL RATE CASE FOR TEST YEAR 2000

I. Summary

This decision grants Bakman Water Company (Bakman) an increase in rates for its general rate case (GRC) for test year 2000, and sets rates under the operating ratio method at a 10% rate of margin.