Discussion

The Commission recognizes two separate, partially overlapping standards of review 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 CPUC2d 538, the Commission further defined its settlement review policy as applicable to all-party settlement proposals.¹ As a precondition to approval the Commission must be satisfied that:

a. The proposed all-party settlement commands the unanimous sponsorship of all active parties to the instant proceeding.

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

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

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

In this proceeding, Applicants and RRB have pursuant to Rule 51 et seq. submitted for our consideration three proposed settlements. Their KRVWC/RRB and Dominguez SBD/RRB settlements are "uncontested settlements" as defined in Rule 51(f), i.e., settlements that are " . . . not contested by any party to the proceeding within the comment period after service of the [ ] settlement on all parties to the proceeding," and all-party settlements.² There are in fact by ALJ ruling no other parties in the consolidated proceeding permitted to participate in matters pertaining solely to KRVWC's A.99-05-020 or Dominguez's A.99-05-024, and in any case there were no comments filed in opposition. The AVWC/RRB settlement, in contrast, is a "contested settlement" as defined in Rule 51(e).

In their motions for adoption, Applicants and RRB, the settling parties, aver that all three settlements conform to the criteria for all-party settlements in San Diego Gas & Electric. They acknowledge their error with respect to the AVWC/RRB settlement, and it is clear that they intend rather to have the Commission apply the criteria set forth for contested settlements in Rule 51. We will do so.

LVTC's Opposition and the Contested AVWC Settlement

Before focusing on the AVWC/RRB settlement, we deal with LVTC's opposition to AVWC's initial position as set forth in A.99-05-023. First, AVWC and RRB make it clear that in arriving at their settlement each has moved beyond its estimates in the initial direct testimony and exhibits (for AVWC, Exhibits D-2 and D-4, and for RRB, Exhibits RRB-2 and RRB-4). While there may be considerable residual congruency between initial estimates and some of the summary of earnings components shown in the settlement, one can no longer look solely to those early exhibits as the bases for the settling parties' current joint position. Thus LVTC's recommendation that the Commission scrutinize AVWC's original projections with an eye toward disallowing large pieces of expense and plant in service has become stale. We are here examining the parties' proposed settlement, not their initial positions which no party today supports.

Second, it was noted earlier that, although LVTC's exhibit opposing the initial application was admitted into evidence upon the motion of RRB by prearrangement among parties who were at the time anticipating an all-party settlement, no expert witness has ever sponsored it. In preparation for the settlement hearing, the ALJ issued a written ruling explicitly inviting parties to present witnesses to support their earlier exhibits to the extent that those exhibits still formed a foundation for their current positions. No LVTC witness has in fact ever made a material direct reference on the hearing record to LVTC's earlier prepared direct testimony in opposition to the application. Exhibit LVTC-1 is in evidence, but it will be afforded limited weight.

Third, LVTC's exhibit goes only so far as to recommend the Commission scrutinize and disallow. LVTC has not pursued that path to completion by deriving a recommended revenue requirement, a specific rate increase, or a set of rates in the way AVWC and RRB have done. We do not know its position on rate of return, on depreciation reserve, on rate design, and the myriad other items that comprise a summary of earnings. Even if we desired to do so, we would find it difficult to fashion supportable new rates based on the limited position LVTC has presented to us.

We turn next to measuring the AVWC/RRB settlement against the applicable standard of review for contested settlements, Rule 51.1(e).

In readying its team for hearings in this proceeding, RRB prepared and served a report covering all components of AVWC's results of operations, attrition, rate design and tariff revisions, and a report on all three Applicants' cost of capital. Both of RRB's reports, along with the supporting attachments to AVWC's A.99-05-023 and AVWC's prepared cost of capital testimony, were admitted into evidence without objection. Those documents fully define the settling parties' initial positions, and their settlement indicates for each significant contested item what the negotiated outcome was. RRB representatives attended each of the public participation hearing sessions in AVWC's service territory. RRB had its team members examine AVWC's complaint history with the Commission's Consumer Affairs Branch, inquire into AVWC's compliance record with the California Department of Health Services, and inspect AVWC's facilities before making a recommendation on the adequacy of its plant and service. RRB reported on customer letters written to the Commission in response to AVWC's customer notice. RRB had experienced counsel representing it at each of the four evidentiary hearings in the proceeding, and by LVTC's own testimony was the major participant in settlement negotiations with AVWC after the initial round of prepared exhibits was mailed. RRB's charge is to represent water utility ratepayers, and, LVTC's view to the contrary aside, there is no indication that it has not earnestly upheld that purpose here or that any other party was as thorough. The fact that an affected party, LVTC, opposes the settlement need not be sufficient to conclude that the settlement is not in the public interest. It is not at all unusual for affected individuals or groups representing ratepayers to oppose negotiated settlements, and absent other justification, not by itself grounds for rejecting a settlement.

Rule 51.1(b) provides that prior to signing any settlement, the settling parties shall convene at least one conference with at least 7 days advance notice and opportunity to participate provided to all parties. LVTC acknowledges it was provided notice and attended the first settlement conference held August 26, 1999. Our requirements for subsequent settlement meetings are much less rigorous. There is no credible evidence that AVWC or RRB attempted to thwart LVTC's input and participation in those settlement negotiations, or at any stage of the proceeding. LVTC did move to have admitted into evidence a discovery request that it contended would show that AVWC and RRB had not been fully responsive in settlement negotiations, but withdrew its motion before that could happen.³

LVTC's charge of ever-changing, arbitrary, inconsistent, unsubstantiated, inaccurate, etc. data having been presented during the negotiations is not an appropriate objection. In the first place, Rule 51.9 is intended to encourage candid and uninhibited participation in settlement negotiations. Allowing parties later to use others' discussions and offers against them can have only a chilling effect, thus Rule 51.9's prohibition against disclosure outside the negotiating circle. And threading through LVTC's objections is a seeming assumption that each element must be independently justified and derivable from supporting data before a settlement may be approved. Such is not the case. It is neither necessary nor advisable to attempt to dissect a settlement to see whether it approximates the result we might have reached had every underlying issue been prosecuted to completion.⁴ No settlement could survive such scrutiny, nor would it leave the parties sufficient room for negotiation.

The settling parties represent that no term of the settlement contravenes any statutory provision or any Commission decision. LVTC does not disagree, nor do we.

Our review indicates that when examined as a total product, the settlement between AVWC and RRB is reasonable in light of the record, consistent with law and in the public interest. It will be approved.

The Uncontested KRVWC and Dominguez SBD Settlements

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 both KRVWC's A.99-05-020 and Dominguez's A.99-05-024, the applicant and RRB are the only parties eligible to participate, and each company joins with RRB to sponsor its settlement. LVTC's intervention was limited by ALJ ruling to matters relating to AVWC's A.99-05-023 and could not include matters pertaining solely to the other two applications. The first condition for approval is satisfied.

We have already discussed how RRB's charge is to represent water utility ratepayers, and the extent to which it did so in AVWC's case. RRB made those same or very similar efforts on behalf of KRVWC's and Dominguez SBD's ratepayers. KRVWC and Dominguez have likewise pursued their own interests and those of their stockholders. The sponsoring parties for each settlement are indeed fairly reflective of the affected interests.

The KRVWC and Dominguez SBD settlements generally mirror AVWC's. Again, the settling parties represent that no term of either settlement contravenes any statutory provision or any Commission decision, and again we concur.

Each settlement includes the parties' proposed summary of earnings for test years 2000 and 2001, derivation of the attrition revenue requirement for 2002, rates or step increases for each year, tariff sheets to be put into effect if the settlements are approved, and the underlying adopted quantities we may need to address any future offset or balancing account requests or similar ratemaking issues. The parties have fully defined the outcomes they have agreed to. Each settlement does convey to the Commission sufficient information to permit it to discharge its future regulatory obligations with respect to the parties and their interests.

KRVWC's settlement with RRB and Dominguez's settlement with RRB meet the Commission's requirements for all-party settlements under San Diego Gas & Electric. Each will be approved.