VII. Discussion

The parties have submitted a proposed settlement agreement for our consideration pursuant to Rules 51 et seq. They aver that the settlement is reasonable in light of the whole record, consistent with law, and in the public interest. This is also an "uncontested settlement" as defined in Rule 51(f), i.e., a settlement that is " . . . not contested by any party to the proceeding within the comment period after service of the [ ] settlement on all parties to the proceeding," and an all-party settlement.⁹

The Commission recognizes two separate, partially overlapping review standards for settlements tendered for its consideration. Rule 51.1(e) holds that the Commission will not approve settlements, whether contested or uncontested, unless they are reasonable in light of the whole record, consistent with law, and in the public interest. And in San Diego Gas & Electric (1992) 46 CPUC 2d 538, the Commission further defined its settlement review policy in relation to all-party settlement proposals.¹⁰ As a precondition to approval the Commission must be satisfied that:

· The proposed all-party settlement commands the unanimous sponsorship of all active parties.

· The sponsoring parties are fairly reflective of the affected interests.

· No term of the settlement contravenes statutory provisions or prior Commission decisions.

· The settlement conveys to the Commission sufficient information to permit it to discharge its future regulatory obligation with respect to the parties and their interests.

A. Unanimous Sponsorship

Under San Diego Gas & Electric, the Commission must be satisfied that any all-party settlement it approves commands the unanimous sponsorship of all active parties. In the Antelope Valley District application, CWS, ORA, CGA, and LVTC are the only parties eligible to participate, each of which joined to sponsor its settlement agreement. In the Kern River Valley District application, CWS and ORA are the only parties eligible to participate, each of which joined to sponsor its settlement agreement. No comments were filed in opposition to the settlement agreement submitted by ORA on June 9, 2003. The first condition for approval is satisfied.

B. Sponsoring Parties Reflective of Affective Interests

CWS had experienced counsel representing its own interests and those of its shareholders. Likewise, ORA had experienced counsel representing it at the EH and engaged in extensive settlement negotiations after the initial round of prepared exhibits were mailed. ORA's charge is to represent water utility ratepayers, and there is every indication that it has thoroughly and earnestly done so here. CGA and LVTC have also pursued the interest of commercial and city users, respectively. The sponsoring parties for the settlement agreement are indeed fairly reflective of the affected interests.

C. No Term Contravenes Prior Commission Decisions

The settling parties represent that no term of either settlement contravenes any statutory provision or any Commission decision. After reviewing the settlement, we concur.

D. Sufficient Information

In readying their team for hearings in this proceeding, CWS and ORA prepared and served reports covering all components of Antelope Valley and Kern River Valley Districts' results of operations, cost of capital, attrition, rate design and tariff revisions. All of these reports were admitted into evidence without objection. Those documents fully define the initial positions of CWS and ORA and the settlement agreement indicates the negotiated outcome for each significant contested item.

ORA representatives attended each of the PPHs in the Antelope Valley District and Kern River Valley District service territories. ORA had its team members examine Antelope Valley District and Kern River Valley District complaint histories with the Commission's Consumer Affairs Branch,¹¹ inquire into their compliance records with the California Department of Health Services, and inspect their facilities before making a recommendation on the adequacy of their plant and service.

CGA and LVTC representatives attended the EH and actively participated in settlement discussions.

The parties have fully defined the outcomes they have agreed to and the settlement conveys sufficient information to permit the Commission to discharge its future regulatory obligations with respect to the parties and their interests.

E. Conclusion

The major issues of synergies, common office expenses, and ROR have been equitably resolved with substantial support in the record by way of exhibits and testimony. Although the parties did not resolve the appropriate methodology for imputing synergies, they settled on an appropriate amount in this proceeding.

Irrespective of whether the synergy methodology used by ORA or CWA should be adopted, the impact on customers by the adoption of one method over the other is relatively small. For example, the $19,729 difference between ORA's $63,800 and CWS's $44,071 Antelope Valley District synergies estimate included in the settlement agreement results in less than a $1.30 monthly difference per customer ($19,729 divided by 1,300 customers divided by 12 months). This is less than 10% of the current monthly general meter service charge of $17.25 and $14.70 for a 5/8" by 3/4" meter (Schedules AV-R-1a, AV-U-1, and AV-R-1 of the application) throughout the Antelope Valley District. This impact is even less when a customer's usage charge is added to the general meter service charge. A consistent method for calculating synergies should be adopted, however.

CWS should provide testimony in its next Antelope Valley District and Kern River Valley District GRC on what is an appropriate and consistent method for calculating synergies from the merger approved in D.00-05-047.

The agreed upon method for allocating common office expenses based on the most recent four-factor allocation is fair and reasonable. Similarly, the adoption of the interim ROR and ROE proposed by the assigned ALJ in A.01-09-062 et al. based on recent litigation subject to true up from additional litigation in A.03-01-034 is fair and reasonable. This ROR and ROE proposal benefits shareholders and ratepayers alike through reduced litigation cost and a limited number of rate changes within a one-year time period. The ROR and ROE also reflect current financial data.

The settlement agreement also addresses several of the customers' cost and water quality concerns. For example, the settlement agreement reduces CWS Antelope Valley District 5.8% rate increase request to an 8.7% reduction in 2003 and a Kern River Valley District 46.9% increase request to 15.9%. It also addresses customers' water quality concerns through projects such as the undertaking of a water supply and facilities master plan for both districts, construction of an iron and manganese treatment facility in the Antelope Valley District, and purification and treatment projects in the Kern River Valley District.

The settlement agreement meets the Commission's requirement for an all-party settlement under San Diego Gas & Electric. When reviewed as a total product, each component is reasonable in light of the record, consistent with law, and in the public interest. The settlement agreement should be approved.