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STATE OF CALIFORNIA EDMUND G. BROWN JR., Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 22, 2012 Draft Resolution W-4922

Agenda ID #11361

TO: All Interested Persons

Enclosed is draft Resolution W-4922 of the Division of Water and Audits (DWA) for Point Arena Water Works, Inc.'s request for a general rate increase Test Year 2011. Draft Resolution W-4922 will be on the Commission's June 21, 2012 Agenda. The Commission may act then on this resolution or it may postpone action until later.

When the Commission acts on a draft resolution, the Commission may adopt all or part of the draft resolution, as written, or amend or modify the draft resolution; or the Commission may set the draft resolution aside and prepare a different resolution. Only when the Commission acts does the resolution become binding.

Interested persons may submit comments on draft Resolution W-4922. An original of the comments, with a certificate of service, should be submitted to:

Division of Water and Audits, Third Floor Division of Water and Audits, Third Floor

Attention: Moises Chavez Attention: Rami Kahlon

California Public Utilities Commission California Public Utilities Commission

505 Van Ness Avenue 505 Van Ness Avenue

San Francisco, CA 94102 San Francisco, CA 94102

Interested persons must serve a written or electronic copy of their comments on the utility on the same date that the comments are submitted to the Division of Water and Audits. Interested persons may submit comments on or before June 11, 2012.

Comments should focus on factual, legal, or technical errors or policy issues in the draft resolution.

Persons interested in receiving comments submitted to the Division of Water and Audits may write to Moises Chavez, email him at mcv@cpuc.ca.gov, or telephone him at (415) 703-2805.

/s/ RAMI S. KAHLON

Rami S. Kahlon, Director

Division of Water and Audits

Enclosures: Draft Resolution W-4922

Certificate of Service

Service List

DWA/RSK/BMD/PTL/MCV/jlj DRAFT AGENDA ID #11361

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

DIVISION OF WATER AND AUDITS RESOLUTION NO. W-4922

Water and Sewer Advisory Branch June 21, 2012

RESOLUTION

(RES. W-4922), POINT ARENA WATER WORKS, INC. (PAWW).

ORDER AUTHORIZING A GENERAL RATE INCREASE PRODUCING ADDITIONAL ANNUAL REVENUE OF $37,414 OR 15.86% FOR TEST YEAR (TY) 2011 AND A SURCHARGE OF $4.25 OVER 48 MONTHS TO RECOVER $38,311 IN LEGAL EXPENSES RECORDED IN PAWW'S MEMORANDUM ACCOUNT CASE 08-12-007.

SUMMARY

By Advice Letter (AL) 64, filed on September 19, 2011, PAWW seeks to increase its rates for water service to recover increased operating expenses and earn a reasonable return on its plant investment. PAWW also requests authority to establish a $4.96 surcharge over a period of 48 months to recover the expenses associated with its Memorandum Account Case (C.) 08-12-007 in the amount of $45,453.

For TY 2011, this Resolution grants an increase in gross annual revenues of $37,414, or a 15.86% increase in gross revenues over the revenues produced under the current rates, which is estimated to provide a rate of return (ROR) of 12.50%.

This Resolution also authorizes a surcharge of $4.25 over 48 months to recover $38,311 in legal expenses recorded in PAWW's Memorandum Account Case (C.) 08-12-007.

BACKGROUND

PAWW has requested authority under Rule 7.6.2 of General Order 96-B (GO 96-B), Water Industry Rule 7.3.3(5) and Section 454 of the Public Utilities Code to increase its gross water revenues for TY 2011 by $69,980, or 29.77% over the revenues produced under the current rates. The purpose of the rate increase is to recover increased operating expenses and provide an adequate rate of return (ROR) on rate base. PAWW's request was based on a ROR of 12.50%.

PAWW's present interim rates became effective on September 19, 2011, by approval of AL 63, which authorized a Consumer Price Index (CPI) rate increase of $3,527 or 1.50% to gross revenues, subject to refund or increase to the rates established in this General Rate Case (GRC) PAWW's last GRC was for Test Year (TY) 2007 and was approved by Res W-4676, which granted an increase in gross revenues of $30,974, or 15.23%.

PAWW is a Class D water utility1 with 188 service connections in the City of Point Arena and vicinity and the Whiskey Shoals subdivisions 1, 2, and 3 in Mendocino County.

PAWW has two separate water distribution systems. Water system No. 1 serves the entire City of Point Arena from two water wells. Well #1 is located approximately 350 feet south of the Garcia River and is currently used as a stand-by well due to the level of iron and manganese in the water supply. Well #2 is located 250 feet from well #1 and has a water supply capacity of approximately 160 gallons per minute. The water supply from these wells is pumped to a 125,000 gallon storage tank where the water is chlorinated and then pumped to the main storage tank with a capacity of 285,000 gallons. The water is distributed from the main storage tank to a 125,000 gallon tank to serve Zone 1, Point Arena's downtown area and Arena Cove. Zone 2, the entire uptown area and the east side of Point Arena where the industrial park is located is also served from the 125,000-gallon tank using two 15-horsepower booster pumps.

Water system No. 2 serves Whiskey Shoals area located two miles south of Point Arena on the west side of Highway 1. This water distribution system has three wells and one 22,000 gallon tank. Well #1, however, is no longer producing water, and well #2's production has also diminished to three gallons per minute. Well #3 is the new well constructed as a result of Case (C.) 08-12-0072 and has a capacity of approximately 50 gallons per minute.

NOTICE AND PROTEST

In accordance with GO 96-B, AL 64 was served on September 15, 2011, to adjacent utilities and persons on the general service list. On November 3, 2011, a notice of the proposed rate increase was mailed to each customer's permanent address and to the general service list.

Two customer letters questioning the rate increase were timely received, and the utility replied. Both customer letters oppose the magnitude of PAWW's rate increase request and believe the company's operating expenses for TY 2011 are excessive.

An informal public meeting was held on December 8, 2011, at 6:30 PM at the Druids Hall in Point Arena. Eleven PAWW customers attended the meeting. Staff from the Division of Water and Audits (Division) explained the Commission procedures, and PAWW representatives explained the need for the proposed rate increase. Division staff and PAWW representatives answered questions until approximately 9:00 PM.

In setting rates in this resolution, we have balanced the financial requirements of PAWW with the rate concerns of its customers.

DISCUSSION

The Division made an independent analysis of PAWW's operations. Appendix A provides PAWW's and the Division's estimated summary of earnings at present and proposed rates for TY 2011, and Appendix B provides the Division's recommended rates for TY 2011. PAWW is in agreement with the Division's recommended revenue requirement, shown in Appendix A, and the Division's recommended rates, shown in Appendix B. The Division recommends that the Commission approve the rate increases and resulting rates included in Appendix B.

Operating Expenses

In this GRC PAWW requests to decrease the TY 2007 adopted water sales from 15,035 to 13,064 one-hundred cubic feet (Ccf)3 for TY 2011, based on 2010 actual water minus an additional 2% reduction anticipated in 2011. Based on Division's review of the company's water sales during 2008 through 2011, Division recommends 12,404 Ccf for the water sales for TY 2011.4

For TY 2011 Division recommends $11,322 for purchased power based on the 12,404 Ccf water sales for TY 2011 and 65,560 kilowatt hours (kWhs) of energy consumption. To calculate purchased power for TY 2011, Division used the energy and water

consumption amounts adopted by Res. W-4676 (79,468 kWh and 15,035 Ccf) and adjusted by 17.50% to account for decreased water consumption in TY 2011.

PAWW requests $21,687 for Other Plant Maintenance expenses for the land leases for the Garcia well, PAWW's water systems at the Bedrock location, and the Whiskey Shoals, and for the telephone lines at the pump stations. Division reviewed PAWW's request and recommends $19,500 for other plant maintenance expenses based on the amount authorized by Res. W-4676 for TY2007, escalated to TY 2011 using the escalation rates provided by the Division of Ratepayer Advocates' (DRA) October 31, 2011 memorandum (DRA's Escalation Memo).5

PAWW requests $42,993 for office salaries for two part-time office assistants. PAWW estimates that the total hours worked by the two employees amount to approximately the work of one full-time employee. The main work duties of these employees include: billing, customer service, bookkeeping, secretarial and general office work.

Division recommends $35,709 for office salaries based on its review of comparable salaries for a full-time office assistant/account clerk in Mendocino County as published by the Association of California Water Agencies (ACWA) for 2008, escalated to 2011. The ACWA salary survey for an account clerk with similar responsibilities ranged from $2,553 to $3,110 per month. Division's recommended salary is based on the average of ACWA's salary range, or $2,832 per month escalated to TY 2011 using the labor escalation factors provided in DRA's Escalation Memo.

PAWW requests $29,187 for management salaries for the company owner to manage and oversee all of the water utility operations, and labor costs associated with operating and maintaining the water utility distribution systems. Division reviewed PAWW's 2008 through 2010 management salary expenses, and on average the company spent $26,117 annually. Based on this average, Division recommends $26,535 for management salaries, which includes a 1.6% labor escalation rate for TY 2011.

PAWW requests $14,625 for professional services to cover the company's costs associated with its accounting/tax returns/CPUC annual report filings, engineering and legal services, and subcontractor expenses. Division reviewed PAWW's professional services expenses and found the expenses associated with company's accounting and Commission's annual reporting filings excessive for a Class D water company. Similarly, Division found the company's request for legal fees and

subcontracting expenses to be too high. Division therefore adjusted these expenses and determined that $9,000 was a more reasonable amount for professional services for a Class D water utility.

PAWW requests $7,467 for regulatory Commission expense for its GRC consulting fees and advice letter filings. Division reviewed PAWW's request and recommends $6,000 for regulatory Commission expenses based on the amount of work involved in preparing the company's GRC filing and anticipated advice letter filings.

Utility Plant and Rate Base

PAWW's estimated average utility plant for TY 2011 is $1,492,606, and the Division's estimate is $1,440,606. The difference in the average utility plant estimate is due to actual amount of plant additions made in TY 2011. PAWW had anticipated making $108,000 in plant additions in 2011 but only added $4,000, so this is reflected in the Division's estimate. Therefore Division's rate base estimate for TY 2011 is $429,129.

Rate of Return

In this GRC, PAWW requests a 12.50% ROR, which is lower than the last approved ROR of 13.25% and within the range of the current recommended ROR for Class D water utilities. Division accepts PAWW's request as reasonable and based its analysis on a ROR of 12.50%. Using this ROR, Division calculates a revenue requirement of $273,320.

Memorandum Account Case (C.) 08-12-007

PAWW requests Commission authority to establish a $4.96 surcharge over a period of 48 months to recover $45,453 in legal expenses currently booked in its Memorandum Account Case (C.) 08-12-007.

PAWW's request to recover the costs recorded in Memorandum Account Case (C.) 08-12-007 meets the Commission's criterion for granting the company's request:

1) the Division's recommended amount of $38,311 in legal expenses, discussed below, is not covered by other authorize rates; 2) the utility acted prudently when it incurred the legal expenses because the company had to respond to Mr. Calone's complaint; 3) it is appropriate for PAWW's ratepayers to pay for the incurred legal expenses because the new water well ultimately benefits all customers by having an additional water supply, and utility costs are allocated among all customers; and 4) the level of booked costs is reasonable based on Division's review of attorney hourly rates and fees in California.

Based on Division review of PAWW's legal expenses associated with C.08-12-007, Division recommends granting PAWW the authority to recover $38,311 in legal expenses. Division's recommended amount excludes the following expenses: 1) $2,538 associated with PAWW's Petition for Rehearing of D.10-16-027 filed on August 12, 2010, which is still pending before the Commission; 2) $840 in regulatory expenses that were recorded in memo account in 2010, which should be covered by the $4,000 in regulatory expenses authorized by Res. W-4676; and 3) $3,765 in legal expenses to account for the professional services authorized by Res. W-4676.6 The surcharge for the $38,311 and 188 service connections is $4.25 per month over a period of 48 months.

PAWW, therefore, should be granted the authority to file a Tier 2 advice letter to establish this surcharge. This advice letter should become effective upon approval by Staff of the Division of Water and Audits.

PAWW, in its next GRC or by a Tier 3 advice letter filing, may seek recovery of the legal expenses associated with its Petition for Rehearing of D.10-16-027 once the Commission rules on the petition.

Rates and Rate Design

For PAWW's proposed metered service rate design, Division recommends an allocation of 80% of the fixed costs to the service charge, instead of the 75% proposed by the company to more proportionately spread the rate increase between the service charge and the quantity rate.7 At the company's proposed allocation, the quantity rate would increase from $5.90 to $7.40 per Ccf, or 25.39%, whereas at the Division's recommended allocation the rate would increase to $6.42 per Ccf, or 8.85%, which Division finds more reasonable.

PAWW's interim rates became effective on September 19, 2011, by approval of AL 63, which authorized a CPI rate increase of $3,527 or 1.5%, subject to refund or increase to the rates established in this GRC. The rates authorized by this Resolution are higher than the interim rates; therefore, PAWW should be allowed to file a Tier 2 advice letter

within 30 days from the effective date of this Resolution to collect the under-collected revenues from the interim rate date to the effective date of the new rates.

PAWW's rate structure consists of one schedule: Schedule No. 1, General Metered Service. The rates proposed by the Division are shown in Appendix B. At the Division's recommended rates the increase in revenue will be $37,414 or 15.86% for TY 2011. At the recommended rates for 2011, a customer's monthly bill with average consumption of 5.50 Ccf will increase from $76.27 to $89.56, a difference of $13.29 or 17.42%. A comparison of customer bills at present and recommended rates is shown in Appendix C. The adopted quantities and tax calculations are shown in Appendix D.

COMPLIANCE

The utility has no outstanding water quality violations and is in compliance with California Department of Public Health water quality standards and the Commission's General Order 103-A.

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, the draft resolution was mailed to the utility, all protestants (whether or not they filed timely protests), and those requesting service at the public meeting, and made available for public comment on May 22, 2012.

FINDINGS

THEREFORE IT IS ORDERED THAT:

1. Authority is granted under Public Utilities Code Section 454 to Point Arena Water Works, Inc. to file a supplemental advice letter with the revised rate schedule attached to this Resolution as Appendix B and concurrently cancel its presently effective rate Schedule No. 1, General Metered Service. The effective date of the revised schedule shall be five days after the date of filing.

2. The quantities (Appendix D) used to develop the Division of Water and Audits' recommendations are adopted.

3. Point Arena Water Works, Inc. is authorized to file a Tier 2 advice letter within 30 days from the effective date of this Resolution to collect the under-collected revenues from September 19, 2011, the interim rate date, to the effective date of the new rates established in this Resolution. This advice letter shall become effective upon approval by Staff of the Division of Water and Audits.

4. Point Arena Water Works, Inc. is authorized to file a Tier 2 advice letter within 30 days from the effective date of this Resolution to establish a surcharge of $4.25, to be collected over a period of 48 months, to recover the $38,311 in legal expenses recorded in Memorandum Account (C.)08-12-007. This advice letter shall become effective upon approval by Staff of the Division of Water and Audits.

5. 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 June 21, 2012; the following Commissioners voting favorably thereon:

(END OF APPENDIX A)

APPENDIX B

Point Arena Water Works, Inc.

SCHEDULE NO. 1

GENERAL METERED SERVICE

Test Year 2011

APPLICABILITY

Applicable to all metered water service

TERRITORY

The City of Point Arena and vicinity and Whiskey Shoals Subdivision Unit Nos. 1, 2, & 3, Mendocino County.

RATES

The service charge is a Readiness-to-Serve charge which is applicable to all metered service and to which is added the monthly charge computed at the Quantity Rate.

SPECIAL CONDITIONS

1. In addition to the above rates and charges rendered to all bills under this Schedule, a surcharge will be added as set forth in Schedule No. 2-X, General Metered Surcharge.

2. All water bills are subject to the California Public Utilities Commission Reimbursement Fee set forth on Schedule No. UF.

3. Point Arena Associates and Wharf Masters Inn will be charged the 4-inch meter charge pursuant to Resolution No. W-4233.

(END OF APPENDIX B)

APPENDIX C

Point Arena Water Works, Inc.

(END OF APPENDIX C)

APPENDIX D

Point Arena Water Works, Inc.

ADOPTED QUANTITIES

Test Year 2011

Tax Calculations

2011

Operating Revenues

$274,320

Expenses

$175,263

Depreciation

$ 11,569

Taxes other than Income

$ 15,322

Taxable Income for State

$ 71,166

State tax

$ 6,291

Taxable Income for Federal

$ 64,875

Federal tax

$ 11,219

     
         
       

(END OF APPENDIX D)

CERTIFICATE OF SERVICE

I certify that I have by electronic mail and mail this day served a true copy of draft Resolution W-4922 on all parties in these filings or their attorneys as shown on the attached list.

Dated May 22, 2012, at San Francisco, California.

SERVICE LIST DRAFT

RESOLUTION W-4922

City of Point Arena North Gualala Water Co.

P.O. Box 67 P.O. Box 1000

Point Arena, CA 95468 Gualala, CA 95445

The Sea Ranch Association Joe Rouse

P.O. Box 16 Independent Coastal Observer

Sea Ranch, CA 95497 P.O. Box 1200

Patricia Schwindt Eric and Leslie Dahlhoff Janet Robinson

P.O. Box 105 P.O. Box 105 543 365 Eastwood Lane

Point Arena, CA 95468 Point Arena, CA 95468 Point Arena, CA 95468

David Bower Steve Oliff Julia Cunningham

37691 Old Stage Road P.O. Box 363 9051 Vista Del Rio

Gualala, CA 95445 Point Arena, CA 95468 Fair Oaks, CA 65628

William Hay, Jr. President

Point Arena Water Works, Inc.

PO Box 205

POINT ARENA CA 95468

1 1. Class D water utilities have less than 500 service connections.

2 2. December 8, 2008, Richard S. Calone complaint against Point Arena Water Works.

3 3. One Ccf equals 748.1 gallons.

4 4. This estimate includes an adjustment of 796 Ccf for the lost water sales from the Sea Shell Inn that was recently closed. The water usage amount is based on the 2011 recorded water sales for this customer.

5 5. Division of Ratepayer Advocates: Estimates of non-labor and wage escalation rates for 2011 through 2015 from October 2011 IHS Global Insight U.S. Economic Outlook.

6 6. Division computed the $3,765 by subtracting $8,235 in professional services the company spent in 2010 from the $12,000 in professional services authorized by Res. W-4676.

7 7. Commission Decision (D.) 92-03-093 allows Class D water utilities to recover up to 100% of the utility's fixed costs through the service charge.

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