ALJ/GW2/jt2 Date of Issuance 4/14/2010

Decision 10-04-031 April 8, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of San Gabriel Valley Water Company (U337W) for authority to establish a conservation rate design, including a Water Revenue Adjustment Mechanism, modified cost balancing account, and Conservation Memorandum Account in compliance with Decision No. 08-06-022.

Application 08-09-008
(Filed September 10, 2008)

DECISION AUTHORIZING CHANGES IN RATE DESIGN AND RATESETTING MECHANISMS, AND DENYING MOTION FOR ESTABLISHMENT OF A MEMORANDUM ACCOUNT

Table of Contents

Title Page

DECISION AUTHORIZING CHANGES IN RATE DESIGN AND RATESETTING MECHANISMS, AND DENYING MOTION FOR ESTABLISHMENT OF A MEMORANDUM ACCOUNT 2 2

1. Summary 2 2

2. Background 4 4

2.1. The Commission's Water Conservation Rate Design Initiative 4 4

2.2. Procedural History of the Application 8 8

3. Competing Proposals of Parties 13 13

3.1. Conservation Rate Designs 13 13

3.1.1. Reduced Service Charges 13 13

3.1.2. Quantity Rates 14 14

3.1.2.1. Tiered Increasing Block Structure 14 14

3.1.2.2. Customer Reclassification and Revenue Neutrality 16 16

3.1.2.3. Long-Run Marginal Cost 18 18

3.1.2.4. Cost of Service Standard 19 19

3.1.2.4.1. Extended or Multiple Family Occupancy 19 19

3.2. Water Revenue Adjustment Mechanism 20 20

3.3. Balancing Account 21 21

3.4. Conservation Memorandum Account 22 22

3.5. Public Outreach and Education 22 22

3.6. Low-Income Features 23 23

3.7. Reporting Requirements 24 24

3.8. Effective Date 24 24

4. Analysis and Resolution 25 25

4.1. Conservation Rate Design 25 25

4.1.1. Reduced Service Charges and BMP 1.4 (30:70) Ratio 26 26

4.1.2. Quantity Rates 27 27

4.1.2.1. Tiered Increasing Block Rate Structure 27 27

4.1.2.2. Revenue Neutrality 30 30

4.1.2.3. Long-Run Marginal Cost 30 30

4.1.2.4. Cost of Service Standard 31 31

4.1.2.5. Extended or Multiple Family Occupancy 32 32

4.2. Water Revenue Adjustment Mechanism 34 34

4.3. Balancing Accounts 35 35

4.4. Conservation Memorandum Accounts 36 36

4.5. Public Outreach and Education 37 37

4.6. Low-Income Features 37 37

4.7. Reporting Requirements 38 38

4.8. Effective Date 40 40

5. Motion for Memorandum Account 40 40

5.1. Arguments of San Gabriel and DRA 40 40

5.2. Analysis and Discussion 42 42

5.2.1. Memorandum Accounts in Water Conservation OII 42 42

5.2.2. Motion in this Proceeding 43 43

5.2.2.1. Purposes of Memorandum Accounts and Conditions for
Their Authorization 43 43

5.2.2.2. First Factor: "Caused by an event of an exceptional nature
that is not under the utility's control" 45 45

5.2.2.3. Second Factor: "Cannot have been reasonably foreseen
in the utility's last general rate case and will occur before the utility's next scheduled rate case" 46 46

5.2.2.4. Third Factor: "Expense is of a substantial nature as to
the amount of money involved" 47 47

5.2.2.5. Fourth Factor: "Ratepayers will benefit by memo account treatment" 49 49

5.2.3. Conclusion 50 50

6. Comments on Proposed Decision 51 51

7. Assignment of Proceeding 52 52

Findings of Fact 53 53

Conclusions of Law 56 56

ORDER 57 57

Attachments: Table A: Comparison Chart of Illustrative Examples and Proposed Residential Conservation Rates

Table B: Illustrative Examples of Residential Service Charge Rates

Figure 1: Conservation Rate Design Procedure

DECISION AUTHORIZING CHANGES IN RATE DESIGN AND RATESETTING MECHANISMS, AND DENYING MOTION FOR ESTABLISHMENT OF A MEMORANDUM ACCOUNT

1. Summary

This decision authorizes a pilot two-tier increasing block water conservation rate design and water revenue adjustment mechanism for the Fontana Water Company (FWC) division and Los Angeles County (LAC) division of the San Gabriel Valley Water Company, effective July 1, 2010. It denies requests for conservation memorandum accounts and for a memorandum account to track certain expenses relative to this proceeding.

The conservation rate design adopted in this decision is a procedural methodology in which the parameters of service charge-to-quantity charge ratios, a low-income service charge discount, the number of pricing tiers and the rate differentials between tiers are determined, but specific rates are not. Specific rates are not calculated because they are dependent on revenue requirements that have been changing during the course of the proceeding and are expected to change further before the conservation rate design takes effect on July 1, 2010. The methodology adopted, composed of nine sequential steps, is set out in Figure 1: Conservation Rate Design Procedure.

Monthly residential water bills are composed of a "service charge" based on water meter size and a volumetric "quantity charge" based on the amount of water, measured in hundred cubic foot units (ccf), the customer has consumed. For the customer with a typical residential water meter (5/8" x ¾") the new rate design reduces the monthly service charge. (Illustrative examples, based on recent but now dated data, of monthly service charges for all residential meter sizes are provided at Table B, Illustrative Examples of Residential Service Charge Rates, in the Attachment).

The adopted rate design calls for a higher proportion of the total annual revenues to be derived from quantity charges than is the case under the current single-tier rate. A comparison of this adopted rate design with those requested by the San Gabriel Valley Water Company and proposed by the Division of Ratepayer Advocates, respectively, is provided in Table A, Comparison Chart of Illustrative Examples and Proposed Residential Conservation Rates, in the Attachment.

The usage break point that is set between tier 1 and tier 2 in each division (through 16 ccf for the FWC division and through 13 ccf for LAC division) approximates the median winter water use. Over the years 2003-2008 the average monthly residential use was 25 ccf for the FWC division and 20 ccf for the LAC division. In neither division will the residential tiered rates be applied to apartments or trailer parks.

For customers on a typical sized residential meter the water quantity rates in the FWC division for tier 1 usage (0 through 16 ccf per month) will be 15% less than those for tier 2 usage (17 ccf per month and above). Based on 2003-2008 average monthly residential use, approximately 57% of the water sold to residential customers is expected to be billed at tier 1 rates, and 43% at tier 2 rates.

For customers on a typical sized residential meter in the LAC division the water quantity rates for tier 1 usage (0 through 13 ccf per month) will be 15% less than those for tier 2 usage (14 ccf and above). Based on 2003-2008 average monthly residential use, approximately 55% of the water sold to residential customers is expected to be billed at tier 1 rates, and 45% at tier 2 rates.

Low income households in each division will have the benefit of a 50% discount from what their service charge would have been under traditional ratemaking.

San Gabriel Valley Water Company is required to report a range of information that will be available for later evaluation of how the pilot conservation rate designs in the two divisions have worked in practice.

With this decision, the proceeding is closed.