COM/LYN/tjl/epg ALTERNATE DRAFT Agenda ID #______

Alternate to Agenda ID#3021

Ratesetting

Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER LYNCH (Mailed 1/28/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of SOUTHERN CALIFORNIA WATER COMPANY (U 133-W), for an order authorizing it to increase rates for water service by $19,826,100 or 29.72% in the year 2003; by $6,327,800 or 7.31% in the year 2004; and by $6,326,200 or 6.81% in the year 2005 in its Region III Service Area and to increase rates for the General Office Allocation in all of its Customer Service Areas in this Application including: Arden-Cordova, Bay Point, Clearlake, Los Osos, Ojai, Santa Maria, Simi Valley and Metropolitan.

Application 02-11-007 (Filed November 4, 2002)

OPINION RESOLVING APPLICATION

OPINION RESOLVING APPLICATION 11

1. Summary 22

2. Background 33

2.1. Procedural History 33

2.2. SCWC's Request 66

2.3. ORA's Recommendation 77

2.4. Position of the City of Claremont 77

2.5. Position of the City of San Dimas 88

2.6. Position of WPOA 88

3. Stipulation 88

3.1. Plant 99

3.2. Sales 1515

3.3. Labor 1616

3.4. Administrative and General (A&G) Expenses 1616

3.5. Operation and Maintenance 1717

3.6. Supply 1818

3.7. Common Issues 1919

3.8. Audit 1919

3.9. Other Issues 2020

3.10. Tariff Rules 2020

POLICY ISSUES 2020

4. Regional or Single Tariff Rates 2020

4.1. Background 2121

4.2. Discussion 2222

5. Allocation of GO Costs to Non-GRC Districts 2525

6. Allocation of GO and Other Costs to Unregulated Operations 2626

6.1. Discussion 2828

7. Cash Preservation Plan 3030

7.1. Background 3131

7.2. Discussion 3232

8. Earnings Test 3636

9. Attrition 3737

9.1. Discussion 3838

10. Water Quality Memorandum Accounts 3838

10.1. Discussion 3939

11. Water OII Amortization 4040

12. Water Quality Compliance 4141

13. Lease of Water Rights to the City of Folsom 4141

13.1. Procedural Background 4242

13.2. Factual Background 4343

13.3. Discussion 4545

COST OF SERVICE ISSUES 6161

14. Cost of Capital 6161

14.1. Cost of Debt 6262

14.2. Return on Equity 6363

14.3. Return on Equity - Discussion of Models 6565

14.4. Return on Equity - Discussion of Risk 6868

15. Sales 7373

15.1. Discussion 7373

16. Water Supply Mix 7474

16.1. Discussion 7575

17. Supply Cost Increases 7676

17.1. Discussion 7676

18. General Office Labor 7777

18.1. Discussion 7878

19. Security Plan 8080

19.1. Discussion 8181

20. Customer Information System Software 8383

20.1. Discussion 8383

21. Pensions and Benefits 8585

21.1. Discussion 8686

22. Reconnection Fees 8686

23. Comments on Proposed Decision 8888

23.1. SCWC Comments 8888

23.2. ORA Comments 9494

23.3. City of Claremont Comments 9595

24. Comments on Alternate Proposed Decision 9595

25. Assignment of Proceeding 9595

26. Timing 9595

Findings of Fact 9595

Conclusions of Law 102102

ORDER 107107

OPINION RESOLVING APPLICATION

1. Summary

This decision grants Southern California Water Company (SCWC) authority to increase rates by $8,093,500 or 12.05% in the year 2003; by $1,849,700 or 2.45% in the year 2004; and by $2,738,900 or 3.54% in the year 2005 in its Region III Service Area. Rates for Region III will continue to be determined on a regional, rather than district specific, basis. SCWC's request to also increase rates for the General Office Allocation to customer service areas (CSAs) in Regions I and II is denied. We find that SCWC violated Public Utilities Code Section 851 when it failed to seek the Commission's approval for its lease of water rights to the City of Folsom. We fine SCWC $1,095,000 for this violation, but suspend $915,000 of the fine amount, for a net fine of $180,000 . Beginning in 2004, revenues derived from the lease of water rights to the City of Folsom will be used to offset the cost of service for the Arden-Cordova CSA. We require that prior revenues from the lease, plus interest, be reflected as a credit to future rates. The following table summarizes the authorized rate increases for Region III.

District	2003		2004		2005
Region III
Orange	$4,647,200	17.69%	$ 899,300	2.89%	$ 1,186,100	3.71%
Claremont	520,800	4.83%	332,700	2.93%	434,300	3.71%
San Dimas	1,021,400	7.90%	145,500	1.04%	525,000	3.72%
San Gabriel	720,000	11.40%	332,300	4.71%	273,900	3.71%
Barstow	1,184,100	17.80%	87,900	1.12%	307,500	3.89%
Calipatria-Niland	-	0.00%	52,000	4.89%	12,100	1.53%
Desert	-	0.00%	-	0.00%	-	0.00%
Wrightwood	-	0.00%	-	0.00%	-	0.00%
Total Region III	$8,093,500	12.05%	$1,849,700	2.45%	$2,738,900	3.54%