5. Authorization for Refinancing Accounting

CalWater requests that the Commission authorize it to amortize any of the discount, expense, or premium associated with the issuance or redemption of its long-term obligations before the date of maturity of the first issue ratably over the remaining life of the replacement obligation.

The Commission's Uniform System of Accounts for Class A Water Utilities, Instructions for Balance Sheet Accounts, paragraph 6.E provides:

When the redemption of one issue or Series of bonds or other long term obligations is financed by another issue or series before the date of maturity of the first issue, any unamortized discount expense or premium on the first issue and any premium paid or discount earned on reacquirement shall be debited or credited, as appropriate, to Account 414, Miscellaneous Debits to Surplus, or Account 401, Miscellaneous Credits to Surplus, provided, however, that the utility desires to amortize any of the discount, expense, or premium associated with the issuance or redemption of the first issue over a period subsequent to the date of redemption, the permission of the Commission must be obtained.

CalWater explains that whenever it makes an early redemption of obligations, the purpose is to lower the debt costs for the benefit of ratepayers. Therefore, the transaction costs and any remaining unamortized discount expense, or premium from the first issue should be recoverable in rates. Furthermore, as customers benefit from the lower financing costs over the life of the replacement obligation, CalWater requests that the transactional costs be amortized ratably over the life of the new obligation. We agree, as this matches the benefits of an obligation with the costs.