VII. Comments on the Proposed Alternate Decision

Opening comments were filed by Cal-Am and DRA on August 13, 2007. Reply comments were filed by those two parties on August 20, 2007.

Cal-Am supports moving the WRAM to an industry-wide proceeding. Cal-Am is also supportive of discussing a CLAM to be used in phase two of this proceeding. Cal-Am continues to advocate for a higher return on equity and use of its ISRS in lieu of the DSIC.

While there is some merit to Cal-Am's argument to recognize a higher level of financial risk, we make no change to the authorized ROE. Cal-Am posits that assuming equal business risk between two companies, the company with more debt has by definition more financial risk. Cal-Am suggests that this needs to be recognized with a higher ROE. We agree that more debt equals more financial risk, however, the calculation of ROE is not as simple as picking one factor and trying to make accommodations for that factor. Additionally, we find that Cal-Am fails to carry the burden of proof to demonstrate an appropriate increase to ROE to account for its higher debt ratio. We make no changes to the discussion in this decision.

Cal-Am also requests that its ISRS be adopted instead of the DSIC. We have addressed this issue in the body of this decision. However, we note that California has not had experience with either a DSIC or an ISRS and therefore caution should be exercised. Cal-Am does clarify that the 7% cap should be for the entire GRC period instead of an annual amount. We have modified the decision to make this change.

DRA supports the fact that the partial settlement is adopted, the setting of the ROE at 10.0%, the adoption of the DSIC, and a penalty for notice requirements. However, DRA does not support the moving of the WRAM and the associated 50 basis point reduction out of this proceeding. Additionally, DRA finds numerous obstacles with a CLAM. DRA states that there are time-consuming and highly technical activities that need to take place before a CLAM can be established. Due to these obstacles, DRA suggests that a CLAM not be considered at this time. DRA also states that there is no basis for the conclusion that a CLAM would not require an ROE adjustment.

The CLAM was suggested to encourage the development of conservation rates in Phase 2 of this proceeding. It is not a requirement that Cal-Am and DRA need to agree to a CLAM to move Phase 2 forward. However, if a CLAM can be negotiated, the rate design in Phase 2 is likely to proceed smoothly. That said, it was not the intent to provide sweeping generalizations about the benefits of a CLAM. We intended that the preference for a CLAM was limited to this GRC only, primarily for the benefit of ensuring an expeditious rate design phase.

We leave unchanged the discussion of the CLAM mainly for illustrative purposes for readers to understand the issue. However, based upon DRA's comments we modify a Finding of Fact and a Conclusion of Law to delete a statement regarding any policy preference and statements regarding the lack of a need for downward ROE adjustments. We do so to remove even the appearance of prejudging this issue prior to an industry-wide debate on this matter.