7. CalWater's Request to Extend Short-Term Financings to Terms up to 24 Months

Independent of CalWater's request that its unsecured line of credit be exempt from Commission authorization, CalWater requests that the Commission authorize it to amend the terms of the Credit Agreement to extend the period for which borrowings, loans, credit extensions, and letters of credit under the Credit Agreement may be outstanding to 24 months from the present maximum period of 12 months. CalWater argues that this provision would provide greater flexibility to defer the issuance of long-term debt and equity in the face of potential market disruptions such as those which occurred in 2008 and 2009.

The purpose of CalWater's Credit Agreement is to finance capital projects approved by the Commission and other working capital needs such as financing the Water Revenue Adjustment Mechanism (WRAM) and the Modified Cost Balancing Account (MCBA).¹⁰ When the line of credit in the Credit Agreement has reached a certain size, CalWater pays down the line of credit by issuing
long-term debt and equity. CalWater contends that it must refinance the credit agreement balance with long-term debt or equity regardless of the market conditions as a result of the provision requiring pay-down of the credit agreement balance within 12 months. Over the past 18 months CalWater contends there have been significant credit spreads which places both ratepayers and the company at risk.¹¹

¹⁰ The WRAM tracks revenue shortfalls from adopted sales levels as compared to actual sales levels. The MCBA tracks differences in variable costs for purchased water and purchased power associated with reduced water sales.

¹¹ June 18, 2010 Response.