Discussion
In D.09-07-021, the Commission explained that accurately allocating costs between regulated and non-regulated operations was essential to ensure that regulated customers are not providing subsidies to shareholders' non-regulated businesses, and to prevent those non-regulated businesses from unfairly competing with firms that do not have regulated operations on which to shift costs. Due to the importance of rate increase applicants making a persuasive showing of thorough and accurate cost allocation, the Commission rejected Cal-Am's proposed allocation and adopted DRA's estimate of non-regulated costs based on Securities and Exchange Commission data. 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 that included the following:
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.
In its petition, Cal-Am presented detailed information about the results of the management investigation of Service Company cost allocation and billing process.2 Cal-Am stated that its investigation included: identifying and verifying all non-regulated companies and business activities, including operations and maintenance contract revenues recorded by regulated entities, tracing customer counts, especially the change in California numbers, and understanding how support costs are billed and revenue recorded. The testimony from the Service Company President stated that the results of the "in-depth and thorough" investigation were "subject to close examination and confirmation" and that Cal-Am's new management played a "strong role" in "pressing the Service Company for a thorough review of the charges and an accurate application of the allocation methodology to California."
As noted above, the result of the investigation was a series of relatively minor corrections to the cost allocation study, which Cal-Am concludes verifies that its original allocation proposal was "accurate and proper." Based on its presentation, Cal-Am requests that the adopted non-regulated services cost allocation be reversed, with an increase in Service Company allocations to California of $820,789.
We have reviewed Cal-Am's application and find that it meets the requirements set out in D.09-07-021. Cal-Am's investigation and documentation shows that it has identified non-regulated operations and segregated costs of serving these operations from its regulated revenue requirement. We will, therefore, modify D.09-07-021 to reverse the non-regulated adjustment based on DRA's Securities and Exchange Commission data, and instead adopt the non-regulated operations corrections presented by Cal-Am in its petition for modification. The end result of these changes is to increase Cal-Am's general office allocation to California by $820,786. The revenue requirement increase for the Monterey water district is $131,300 and for the Monterey wastewater district is $11,100.
We reiterate our commitment to imposing the highest cost accounting and disclosure requirements on public utilities that choose to use employees and assets included in regulated revenue requirement for non-regulated operations. Therefore, we grant DRA's request to impose explicitly these duties on Cal-Am.
2 Much of personnel and cost data contained in the testimony supporting the petition for modification had previously been provided to the Commission in this docket.
