Recently, San Gabriel Valley Water Company was authorized to implement a low-income ratepayer assistance program in D.05-05-01542 where we found that a credit to the service charge could still promote water conservation because it left the quantity rate and rate steps unchanged. San Gabriel's California Alternative Rates for Water (CARW) was implemented as a result of earlier Commission directives43 to develop a program consistent with § 739.8 to provide rate relief for low-income ratepayers:
§ 739.8. (a) Access to an adequate supply of healthful water is a basic necessity of human life, and shall be made available to all residents of California at an affordable cost.
(b) The commission shall consider and may implement programs to provide rate relief for low-income ratepayers.
(c) The commission shall consider and may implement programs to assist low-income ratepayers in order to provide appropriate incentives and capabilities to achieve water conservation goals.
(d) In establishing the feasibility of rate relief and conservation incentives for low-income ratepayers, the commission may take into account variations in water needs caused by geography, climate and the ability of communities to support these programs.
The requirements of § 739.8 are an adaptation for water utilities of the provisions in §§ 739.1-739.5 for gas and electric utility customers that established California Alternate Rates for Energy (CARE) programs:
§ 739.1. (a) The commission shall establish a program of assistance to low-income electric and gas customers, the cost of which shall not be borne solely by any single class of customer. The program shall be referred to as the California Alternate Rates for Energy or CARE program. The commission shall ensure that the level of discount for low-income electric and gas customers correctly reflects the level of need. (Emphasis added.)
In the San Gabriel proceeding, the Commission recognized that "(w)hile we were unable to determine an equitable way to provide every low-income San Gabriel resident a discount for water, we are under no obligation to do so. Since two thirds of San Gabriel's customers are eligible for the discount, there is no just or compelling reason to deny these low-income customers a discount."44 The Commission found no reasonable means to extend the CARW assistance to sub-metered customers. San Gabriel estimated that for 5/8-inch service CARW customers the monthly bills will decrease $4.88, but for 5/8-inch service non-CARW customers, monthly bills will increase $2.32. The Commission found imposing this increase on non-CARW customers was reasonable in order to offer assistance to the majority of low-income customers.
Apple Valley was also ordered in D.03-08-069, in its last general rate case to propose the implementation of a low-income ratepayer assistance program in it next rate case.45 However, Apple Valley filed Ex. 5 only after the April 7, 2005 ruling required it to file such a proposal.46 Apple Valley concluded that it should not offer a low-income assistance program. It cites the costs for non-recipients and the fact that all eligible low-income customers are not served directly on an Apple Valley meter, because many are sub-metered.47 The costs are estimated as follows: 5,801 out of 18, 557 residential customers (31%) are estimated to likely meet the low-income guidelines; a $5/month discount would cost $29,005 in monthly revenues to be reallocated to non-recipients; thus the 12,756 non-recipient customers' bills would increase by $2.27 per month.48 The annual revenue requirement impact is $348,060 (5,801 customers x $5 x 12 months).
Apple Valley illustrated five options:
15% Total Bill
10% Total Bill
5% Total Bill
Apple Valley proposed that the Commission should not adopt any the above five options for a CARW rate discount and recommended instead "that conservation programs be evaluated ... (because lost water from) ...leaky pipes and fixtures is a significant issue." Apple Valley suggests that Commission should open a rulemaking "to explore other funding mechanisms including the feasibility of a Federal Water Assistance Program or a State Wide Assistance Program under which each utility would provide funding to the program (similar to CARE)."
A $5/month low-income assistance program for Apple Valley costs five cents less per non-CARW customer ($2.32 - $2.27) than the cost of San Gabriel's program, and it provides 12-cents more in discount ($5.00 - $4.88). These figures are based on only applying the cost recovery to other residential customers even though § 739.8 does not explicitly limit the reallocation to residential customers, and the analogous energy program in § 739.1 explicitly states the costs recovery for the program "shall not be borne solely by any single class."
As discussed below we will immediately adopt a $5 per month service charge discount for low-income ratepayers. We will not consider larger discounts at this time. We will instead focus on the $5 program, which is similar to the recently adopted San Gabriel program.
ORA recommended that we adopt the $5/month service charge discount and that Apple Valley should be allowed to track implementation costs for later recovery. ORA also indicated it intended its recommendation to be consistent with the San Gabriel program. We approve these recommendations and also adopt specific simple procedures for Apple Valley to ensure compliance.
As noted for San Gabriel, we presently cannot extend the low-income assistance to customers served by a master meter, and a landlord attentive to every dollar will see a $2.27 increase to the service charge (but not as a separate line item). Thus, in a small five-unit complex, were the landlord to pass through the service charge increase, the individual renter could see a $0.45 ($2.27 ÷ 5) per month rent increase. At a larger complex, the impact per consumer would be lower. This conjecture conservatively assumes all master-metered customers are otherwise eligible for the CARW discount. We reluctantly accept this potential adverse impact, but we will consider any improvements offered to us in subsequent proceedings.
The easiest way to reach the eligible customers is to automatically assign them based upon their current participation in an existing CARE program. Therefore, customers may demonstrate eligibility by showing proof of their enrollment in the Southern California Edison CARE program. Such proof can be a recent bill showing the customer is a CARE customer. Alternatively, the water customer may not have an account in his or her name with Edison, or for any reason does not want to provide a bill to Apple Valley. Therefore, Apple Valley must create a self-certification application substantially similar to Edison's (or another approved form as used by a California utility) and file that application form by advice letter for Commission approval.
The Commission authorized the Low-Income Rate Assistance Program (LIRA) by D.89-07-062 and D.89-09-044. LIRA became CARE, effective January 1, 1995, as a result of Senate Bill (SB) 491. The current effective rules for determining low-income eligibility are set forth in Resolution E-3524, dated February 19, 1998. The current eligibility criteria49 for energy utilities were authorized in an April 26, 2005 letter from the Commission's Energy Division, in compliance with Resolution E-3524:
Household Size Income Limitation
1 - 2 $24,200
Each Additional $ 5,800+
We will apply these already existing eligibility income limits on the Apple Valley program adopted in this decision. The current eligibility criteria may affect Apple Valley's estimate of eligible customers because it did not consider the sliding scale for household size. We will use Apple Valley's household number and provide a balancing account as discussed below. Apple Valley shall use the updated income limits in accordance with the Energy Division's annual letters.
Apple Valley must publicize the availability of the low-income discount and explain to its customers how to apply, and the eligibility criteria. We will direct Apple Valley to propose customer notices to the Commission's Public Advisor for approval, and Apple Valley shall inform all customers of the program in every billing cycle for the first 12 months following the effective date of this decision.
We will include in this proceeding's rate design the assumption that Apple Valley will incur the $29,005 monthly revenue reallocation to provide a $5 per month discount to 5,801 customers. Our adopted rate design includes this reallocation, making Apple Valley whole for the forecast. This results in an extra charge to reallocate the forecast shortfall to Non-CARW customers. It is very likely that the number of eligible customers, or the monthly value of actual discounts, will not match this estimate. Therefore, Apple Valley shall file an advice letter to establish a CARW Discount Balancing Account to record the over- or under-provisioning of the discount. For example, if only 5,000 monthly discounts are made in January 2006, then $4,005 (801 customer-shortfall @ $5 each) would be recorded as an overcollection to be refunded to non-recipient customers, or to offset the cost reallocation for subsequent year's discounts. Apple Valley will offset the discounts in the balancing account with the revenue generated by the extra CARW reallocation charge. For example, if this charge is $2 then 15,000 customers would contribute $30,000 per month, enough to offset the $29,005 discount described above. Equally, Apple Valley may record for future recovery any under-collection should there be more discounts to low-income customers than we forecast in the test year. As with any balancing account, Apple Valley must meet its burden of poof that the balance is correct and reasonable.
Apple Valley may recover in the annual escalation year filing the prior year's balance in its CARW Discount Balancing Account, subject to refund, based on a reasonableness review in its next general rate case. The recovery should be treated as a revenue adjustment. Apple Valley may collect or refund in rates any CARW Discount Balancing Account balance in its two annual escalation year advice letters, for 2007 and 2008, to ensure timely rate relief. Because this is a new program, we will examine the reasonableness of the CARW program in the next GRC.
It is also fair to allow Apple Valley an opportunity to recover its reasonable implementation costs that are incremental to costs already included in its test year revenue requirement. We have no reliable current estimate by Apple Valley of the scope or the cost of implementation. For example, if Apple Valley could show that programming costs are necessary to modify the billing system, then Apple Valley should be able to recover those costs. Similarly, specific advertising or notices for the service may be incremental to embedded costs for customer communications. We will authorize Apple Valley to file an advice letter to create an implementation memorandum account to record its incremental costs.
Balancing accounts as authorized by the Commission have an associated expectation of recovery, they have been, so to speak, pre-authorized by the Commission, and it is the recorded amounts that are reviewed for reasonableness. Memorandum accounts, in contrast, are accounts to record costs for tracking purposes to allow the utilities to meet their burden of proof for the later opportunity to recover recorded costs. Recovery is not automatic. Because we cannot predetermine the full scope of recoverable implementation costs, in contrast to the revenue reallocation discussed above, a memorandum account is the appropriate mechanism to recover the reasonable CARW program implementation costs.
Apple Valley may recover its reasonably incurred implementation costs subject to these limitations: (1) the costs are solely related to implementing and operating a CARW program; (2) the costs are incremental to cost already included in the test year forecast; and (3) Apple Valley can demonstrate that they were the lowest reasonable costs necessary to implement the program. These tests are the same tests we impose on utilities for a catastrophic event memorandum account, where we do not know the costs in advance, but we still impose a duty to exert reasonable management control. Again, Apple Valley must meet its burden of proof for any cost recovery.
Apple Valley may recover its CARW Implementation Memorandum Account, subject to refund, based on a reasonableness review, in its next general rate case scheduled for a test year 2009. We do not expect these costs, if any, to be large, and Apple Valley may recover its reasonable costs in the next rate case after we have reexamined the CARW program.
Apple Valley shall report annually on March 1, to both ORA and the Water Division, on the number of actual participants and the balance in the CAWR Implementation Memorandum Account and in the CARW Discount Balancing Account.
42 A.03-04-025 filed April 24, 2003.
43 D.02-10-058, cited in D. 05-05-015 at p. 2.
44 D.05-05-015, p. 4.
45 Ordering Para. 5: AVR shall gather demographic information about its customers for the purpose of determining the feasibility of offering reduced rate programs for its low-income customers and include those results and a recommendation for a low-income program in its next GRC. If AVR determines that such a program is not feasible, it shall explain why.
46 Apple Valley did include the study in its work papers but not in the application or initial prepared testimony. Unless later identified as an exhibit, work papers are not a part of the record. This oversight should have been identified and corrected when the proposed application was served. (See Rate Case Plan D. 04-06-018.)
47 Ex. 5, p. 4.
48 Data, See Ex. 5, pp. 4-6. Apple Valley used an old income limitation to estimate the number of eligible customers. (See transcript, p. 300.)
49 In contrast to the old criteria used by Apple Valley (Transcript, p. 300). Resolution E-3524 sets forth a requirement for Energy Division to annually update the income limitations.