STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor
PUBLIC UTILITIES COMMISSION
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3298
July 13, 2010 Draft Resolution No. W-4839
Agenda ID #9644
TO: All Interested Parties
Enclosed is draft Resolution No. W-4839 of the Division of Water and Audits. It will be on the Commission's August 12, 2010 agenda. The Commission may act then act on this resolution or it may postpone action until later.
When the Commission acts on a draft resolution, it may adopt all or part of it as written, amend, modify or set it aside and prepare a different resolution. Only when the Commission acts does the resolution become binding on the parties.
Parties to this matter may submit comments on this draft resolution. An original and two copies of the comments, with a certificate of service, should be submitted to:
Division of Water and Audits, Third Floor
Attention: Oge Enyinwa
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, CA 94102
Parties may submit comments on or before August 2, 2010. The date of submission is the date the comments are received by the Division of Water and Audits. Parties must serve a copy of their comments to Live Oak Springs Water Company on the same date that the comments are submitted to the Division of Water and Audits.
Comments shall be limited to five pages in length plus a subject index listing the recommended changes to the draft resolution, a table of authorities and appendix setting forth the proposed findings and ordering paragraphs.
Comments shall focus on the factual, legal, or technical errors in the draft resolution, and shall make specific reference to the record or applicable law. Comments which fail to do so will be accorded no weight and are not to be submitted.
Persons interested in comments of parties may write to Oge Enyinwa or telephone her at (415) 355-5564.
/s/ RAMI S. KAHLON
Rami S. Kahlon, Director
Division of Water and Audits
Enclosures: Draft Resolution W-4839
Certificate of Service
Service List
DWA/RSK/PTL/OE2:jrb
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
DIVISION OF WATER AND AUDITS RESOLUTION NO. W-4839
Water and Sewer Advisory Branch August 12, 2010
(RES. W-4839), LIVE OAK SPRINGS WATER COMPANY (LIVE OAK SPRINGS) ORDER AUTHORIZING A GENERAL RATE INCREASE (GRC), PRODUCING ADDITIONAL ANNUAL REVENUES OF $22,393 OR 30.70% FOR TEST YEAR 2010.
SUMMARY
By Advice Letter 23-W filed March 11, 2010, Live Oak Springs seeks to increase its rates for water service to recover operating expenses and earn an adequate return on its plant investment.
For Test Year 2010, this Resolution grants an increase in gross revenues of $22,393 or 30.70% which is estimated to provide a rate of return of 10.08%.
BACKGROUND
Live Oak Springs, a Class D water utility, is requesting authority under Rule 7.6.2 of General Order 96-B and Water Industry Rule 7.3.3 (5), and Section 454 of the Public Utilities Code to increase its rates by $31,900 or 50.30%. The purpose of the rate increase is to recover increased operating expenses and to provide an adequate rate of return. Live Oak Springs request shows 2010 gross revenues of $63,383 at present rates increasing to $95,283 at the proposed rates.
The present rates became effective on May 17, 2010, with the approval of Advice Letter 25-W, which authorized an interim rate increase of $9,507 or 15% subject to refund or increase to the rates established in this GRC. The last general rate increase became effective on November 30, 2006, pursuant to Resolution (Res.) W-4615, which granted an increase in revenues of $46,400 or 320%.
Live Oak Springs currently provides service to approximately 97 metered customers in the unincorporated community of Live Oak Springs, a service area located near the City of Boulevard, San Diego County. Live Oak Springs is owned and run by Mr. Nazor Najor who took over the company from his father in 1982.
The original plant has been in place since the 1940's. The pipe system is over 70 years old and is deteriorating and in some cases runs fairly close to the roadway surface and has major leaks in several sections of it. Live Oak Springs obtains its water supply from two wells. The two operational wells are named Well No. 2 and Well No. 5. The reason the numbers are out of sequence is that the numbering includes old, abandoned wells. For instance, Well No. 3 was recently abandoned due to a high concentration of nitrates. Well No. 2 has a depth of 220 feet and a capacity of 55 gallons per minute. Well No. 5 is used primarily as a back-up and also has a capacity of 55 gallons per minute. Live Oaks Springs is sufficient to meet its customers' demand and is in compliance with the provisions of General Order 103.
NOTICE, PROTESTS, AND PUBLIC MEETING
A notice of the proposed rate increase was mailed to each customer on December 12, 2009. Nine letters questioning the rate increase were received.
An informal public meeting was held on Monday, January 11, 2010, at The Live Oak Springs Restaurant located in the city of Live Oak Springs. The meeting was attended by approximately eighteen customers. The Division of Water and Audits (Division) staff explained to the participants the Commission rate-setting procedures, while Live Oak Springs' representatives cited justifications for the proposed rate increase. Staff and Live Oak Springs responded to various questions from the attendees. Some of the concerns most frequently brought up by customers were the system's dilapidated infrastructure, water quality and the reasons for the rate increase. These concerns, along with others, were also discussed and addressed by Live Oak Springs representatives. The meeting was adjourned at 7:25 pm.
DISCUSSION
The Division staff made an independent analysis of Live Oak Springs' operations. Appendix A shows Live Oak Springs and the Division's estimated summary of earnings at present, proposed, and recommended rates for Test Year 2010. Live Oak Springs is in agreement with the Division's recommended revenue requirement and the rates shown in Appendix B.
The Division staff reviewed Live Oak Springs operating revenues and expenses including purchased power, materials, contract work, water testing, other plant maintenance, office salaries, office services and rentals, office supplies and expenses, professional services, insurance, general expenses, depreciation, and taxes other than income. Staff verified the operating expenses by reviewing annual reports and supporting documents for substantiation and accuracy, and included the amounts that were deemed reasonably necessary.
Staff audited actual bills for expenses to make its estimates, and also used different inflation rates than Live Oak Springs, who used projections across all expenses when recorded information did not apply. Based on the Division of Ratepayer Advocates memorandum of January 31, 2010, the Division uses a non-labor inflation rate of 2.8% and a labor inflation rate of 0.3% for the appropriate operating expense, which Live Oak Springs agrees with.
Live Oak Springs, at 97 service connections for TY 2010, is a Class D water utility for rate-making purposes. The Division's Utility Audit, Finance and Compliance Branch (UAFCB) currently recommends a Rate of Margin of 23.03% and a Rate of Return from 12.50% to 13.50% for a Class D, 100% equity financed utility. The two methods are available for the Division to utilize in the rate-making process: (1) Rate of Return and (2) Rate of Margin.
Per Decision 02-03-093, dated March 31, 1992, the Division must recommend the method that produces the higher revenues. If only the Rate of Return Method was used, a utility with little or no rate base would earn little or no return. Nevertheless, in order to reduce the impact of rate shock on its customers Live Oak Springs has requested a revenue increase of $22,393 which will yield an annual revenue of $95,283 from its present revenue of $72,890. This revenue increase yields a rate of return of 10.08%, which is lower than the allowable rate of return of 12.50%.
Live Oak Springs' current rate structure consists of one schedule: No. 1, Metered Service. The rates proposed by the Division are shown in Appendix B. At the recommended rate of return, the increase in revenue will be $22,393 or 30.70% for test year 2010. In compliance with the water conservation goals of the state, Live Oak Springs has meters for all its customers.
At the Division's recommended rates, the monthly bill for a 5/8" metered customer using 7 Ccf (reflects the average consumption for a Live Oak Springs customer) would increase from $52.97 to $79.55, which is $26.58, or 50.2%. A comparison of customer bills for present and recommended rates is shown in Appendix C. The adopted quantities and tax calculations are shown in Appendix D.
COMPLIANCE
Live Oak Springs has no outstanding compliance orders. The utility has been filing annual reports as required. As of February 2, 2010, the County of San Diego, Department of Environmental Health (DEH) findings were that the system infrastructure is in dire need of replacement and suggests a written time line be implemented with specific infrastructure upgrades. Upgrades necessary are replacement of distribution mains and laterals, storage tank upgrades and a booster pump for homes at the higher elevations. Any infrastructure replacement must meet the California Code of Regulations; Waterworks Standards and the American Water Works Association (AWWA) or be National Sanitation Foundation (NSF) ANSI 61 approved. The DEH also requested that it be notified before work is started to assure work is done in a sanitary manner and under the guidance of a Certified Water System Operator.
The Division also recommends that Live Oak Springs update its Schedule No. UF.
COMMENTS
Public Utilities Code Section 311(g) (1) provides that resolutions generally must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission.
Accordingly, this draft Resolution was mailed to the utility and Protestants and made available for public comment on July 13, 2010.
FINDINGS
1. Live Oak Springs is owned and run by Mr. Nazor Najor.
2. The original plant has been in place since the 1940's.
3. The distribution system is over 70 years old, deteriorating and in some cases runs fairly close to the roadway surface and has major leaks in several sections of it.
4. The County of San Diego, Department of Environmental Health finds that the system infrastructure is in dire need of replacement and suggests a written time line be implemented with specific infrastructure upgrades.
5. The present rates became effective on May 17, 2010, with the approval of Advice Letter 25-W, which authorized an interim rate increase of $9,507 or 15% subject to refund or increase to the rates established in this GRC.
6. For TY 2010, it is appropriate to grant Live Oak Springs an increase in gross revenues of $22,393 or 30.70%, which is estimated to provide a rate of return of 10.08%.
7. Live Oak Springs is in agreement with the Division of Water and Audits' (Division) recommended rates.
8. The Division's recommended earnings (Appendix A) are reasonable and should be adopted.
9. The rates recommended by the Division (Appendix B) are reasonable and should be adopted.
10. The quantities (Appendix D) used to develop Division's recommendations are reasonable and should be adopted.
THEREFORE IT IS ORDERED THAT:
1. Authority is granted under Public Utilities Code Section 454 to Live Oak Springs Water Company, to file an advice letter incorporating the summary of earnings and the revised rate schedules attached to this resolution as Appendices A and B, respectively, and concurrently cancels its presently effective Schedule No. 1, Metered Service. The effective date of the revised rate schedules shall be five days after the date of its filing.
2. Live Oak Springs Water Company is authorized to file a Tier 1 advice letter within 60 days from the effective date of this Resolution to collect over a twelve-month period the under-collected revenues from the interim rate date to the effective date of this Resolution.
3. This resolution is effective today.
I certify that the foregoing resolution was duly introduced, passed, and adopted at a conference of the Public Utilities Commission of the State of California held on August 12, 2010; the following Commissioners voting favorably thereon:
PAUL CLANON
Executive Director
APPENDIX A
LIVE OAK SPRINGS WATER COMPANY
Summary of Earnings
Test Year 2010
APPENDIX B
Live Oak Springs Water Company
Schedule No. 1
METERED SERVICE
Test Year 2010
APPLICABILITY
Applicable to all metered water service.
TERRITORY
The unincorporated community of Live Oak Springs and Vicinity, San Diego County.
RATES
Quantity Rates:
First 300 cu. ft., per 100 cu. ft... $ 3.33 (I)
Over 300 cu. ft., per 100 cu. ft... $ 4.19 (I)
Service Charge: Per Meter
Per Month
For 5/8 x ¾-inch meter $ 52.80 (I)
For 3/4-inch meter $ 79.20 (I)
For 1-inch meter $132.00 (I)
For 1-1/2-inch meter $264.00 (I)
For 2-inch meter $422.40 (I)
The service charge is a readiness-to-serve charge, which is applied to all metered service and to which is added the monthly charge computed at the Quantity Rate.
SPECIAL CONDITIONS
1. All bills are subject to the reimbursement fee set forth in Schedule UF.
APPENDIX C
Live Oak Springs Water Company
Monthly Comparison of Rates
Per Service Connection Per Month
Interim Recommended Percent
Rates Rates Increase
Service Charge:
For 5/8 x 3/4-inch meters $ 34.81 $ 52.80 51.7%
For 3/4-inch meters $ 52.22 $ 79.20 51.7%
For 1-inch meters $ 87.03 $132.00 51.7%
For 1-1/2-inch meters $174.05 $264.00 51.7%
For 2-inch meters $278.48 $422.40 51.7%
Quantity Charge:
First 300 cu. ft., per 100 cu. ft. $2.280 $3.330 46.1%
Over 300 cu. ft., per 100 cu. ft. $2.830 $4.190 48.1%
A monthly bill comparison for a customer with a 5/8 x 3/4-inch meter is shown below:
Usage Interim Recommended Amount Percent
100 cu. ft. Rates Rates Increase Increase
0 $34.81 $ 52.80 $17.99 51.7%
3 $41.65 $ 62.79 $21.14 50.8%
5 $47.31 $ 71.17 $23.86 50.4%
7 $52.97 $ 79.55 $26.58 50.2%
10 $61.46 $ 92.12 $30.66 49.9%
15 $75.61 $113.07 $37.46 49.5%
APPENDIX D
Live Oak Springs Water Company
ADOPTED QUANTITIES
Test Year 2010
1. Purchased Power
Total Cost $ 3,400
2. Water Sales in Ccf 8,185
3. Payroll
Office Salaries $ 3,697
Management Salaries $13,871
4. Property Taxes $ 1,386
Metered Rate Service Connections
Service Connections - Meter Size
5/8 x 3/4" 95
3/4" 1
1" 1
1-1/2"
2"
Total Metered 97
Adopted Tax Calculation Test Year 2010
1. Operating Revenues $95,283
2. Expenses $54,754
3. Depreciation $ 8,145
4. Property Taxes $ 1,386
5. Payroll Tax $ 1,733
6. Taxable Income for State Tax $25,206
7. State Tax (min 800) $ 2,228
8. Taxable Income for FIT $22,978
9. Federal Tax $ 3,447
CERTIFICATE OF SERVICE
I certify that I have by mail and e-mail this day served a true copy of draft Resolution No. W-4839 on all parties in these filings or their attorneys as shown on the attached list.
Dated July 13, 2010, at San Francisco, California.
/s/ JOSIE R. BABARAN
Josie R. Babaran
Parties should notify the Division of Water and Audits, Public Utilities Commission, 505 Van Ness Avenue, Room 3106, San Francisco, CA 94102, of any change of address to insure that they continue to receive documents. You must indicate the Resolution number of the service list on which your name appears.
SERVICE LIST
DRAFT RESOLUTION No. W-4839
Dianne Jacob, Chairwoman Supervisor, Second District San Diego County Board of Supervisors 1600 Pacific Highway, Room 335 San Diego, CA 92101 |
Denise Moreno Ducheny State Senator California Legislature 637 3rd Avenue, Ste. A-1 Chula Vista, CA 91910 |
Charles G. Dierkop PO Box 1181 Boulevard, CA 91905 | ||
Patricia Elliot |
Joe Montoya 1420 W. 16th Place Yuma, AZ 85364 |
Steve DePaoli 6337 Cam. Del Pastel San Diego, CA 92111 | ||
Pat Stewart PO Box 1291 Boulevard, CA 91905 |
Frank Brommenschenkel Frank B & Associates 134 Davis St. Santa Paula, CA 93060 |
Nazar Najor President Live Oak Springs Water Co. PO Box 1241 Boulevard, CA 91905 |
