Background
In D.09-07-021, the Commission authorized California-American Water Company (Cal-Am) to increase water rates in its Monterey District and included an allocation of Cal-Am's parent company, American Water Works, Inc., general office costs. In that decision, the Commission found that the parent company has over 100 municipal contracts to which it allocated no costs, which had the effect of shifting these costs to utility customers. Because careful cost allocation to non-regulated operations is essential to ensure that regulated customers are not subsidizing non-regulated operations, and that regulated utilities are not engaging in unfair competition with firms that lack a monopoly customer base, the Commission adopted the Division of Ratepayer Advocate's non-regulated allocation which was calculated from data in Securities and Exchange Commission filings. The Commission, however, allowed Cal-Am another opportunity to demonstrate the cost allocation that would occur if the multiple tier allocation methodology were applied comprehensively to all non-regulated operations, and authorized Cal-Am to file a petition for modification of D.09-07-021 that fully disclosed all non-regulated operations which use any assets or employees included in revenue requirement. The Commission directed Cal-Am to specifically include in any such petition the following information:
1. Identification of all such goods and services provided to non-regulated operations,
2. Identification of all personnel positions and assets included in revenue requirement and used to provide the non-regulated goods and services,
3. Statement of revenue received for such goods and services, and
4. Demonstration that all identifiable costs are direct billed to non-regulated accounts and that all indirect costs are allocated consistent with the multiple tier methodology.
On October 7, 2009, Cal-Am filed its petition for modification of D.09-07-021. In support, Cal-Am provided testimony from the president of American Water Works Service Company (Service Company) which is the corporate entity that provides shared services to the American Water Works companies. The testimony addressed non-regulated operations that use any assets or employees the costs of which are included in revenue requirement. The testimony revealed that American Water Works, Inc., has 47 non-regulated corporate entities1 that receive services from Service Company and that American Water Works, Inc., uses a two-tier system to first directly bill and then allocate remaining costs to these entities. The testimony showed that American Water Works, Inc., has 135 billing contracts that were not directly billed or allocated Service Company or other corporate costs in Cal-Am's original general office filing. To comprehensively review and identify any needed corrections, the president personally initiated an in-depth and thorough review of Service Company inter-corporate billing and cost allocation policies and procedures. This review specifically included the support provided by the Customer Service Center for the 135 billing contracts which led to a reduction in California's share of Customer Service Center costs. The final result of several adjustments reduced Service Company billings to California operations by $449,000.
Cal-Am's director of rates and regulation tabulated a $309,179 resulting decrease in revenue requirement due to these adjustments. This decrease, however, was more than offset by reversing the Commission's adopted non-regulated allocation of $1,129,965, with the ultimate result of an increase in Cal-Am's 2009 general office revenue requirement of $820,786.
Cal-Am also presented testimony from its Manager of Business Services for the Alton, Illinois, Customer Service Center, who sponsored analysis showing that up to 1.02% of the customer telephone calls received by the center are related to non-regulated municipal service contracts.
DRA did not oppose Cal-Am's petition for modification but offered a minor correction and requested that the Commission make permanent Cal-Am's obligation to include comprehensive information on its non-regulated operations.
1 Ten of which are inactive.
