4. Workshop Content, Report and Related Commentary

In the comments preceding the workshop sessions, the discussions during those sessions, the Workshop Report, and the comments on that report, the parties agreed that the rules established by D.06-03-01515 for the accounting and ratemaking treatment of state grant-funded plant should apply to local and federal government grant-funded plant. D.06-03-015 concluded that state grants used to fund plant should be accounted for as CIAC except that a new designation, Account 266, was to be used rather than the CIAC account, Account 265, identified in the applicable Uniform System of Accounts for Water Utilities (Class A).16

DWA's Workshop Report recommends that loan-funded new plant replacing contaminated plant should be treated as CIAC along the lines set out in the 1978 Commission Quincy decision, D.88973.17 DWA concludes, as did the Quincy decision, that CIAC rather than rate base treatment best meets Commission objectives.18 DWA further recommends that the Commission consider a form of compensation, in the investor owned utilities' (IOU) cost of capital proceedings, for their efforts in pursuing these types of loans for the benefit of their customers, and to account for any additional liability associated with these types of loans and the IOUs' responsibility over the operation and maintenance of the replacement plant that may not be fully accounted for by the CIAC ratemaking treatment method.

In its opening comments CWA, while indicating that the Quincy CIAC (surcharge) approach was available, urged adoption of what it calls the "conventional cost of capital approach" which would be "to treat a government loan just like a loan from a private financial institution, with the cost reflected in the utility's weighted cost of debt."19 CWA thinks that the related utility plant should be treated like all other utility plant investments and placed in the rate base. Should the Commission be inclined to the CIAC/surcharge approach, however, CWA warns that a distinction needs to be drawn between large and small water companies due to the administrative burdens that go along with government loans.20

Park Water Company (Park) recommends that government loans be recorded as long-term debt and the related utility plant be rate based.21 Park argues that "the benefit of the lower interest typically applied to government loans would flow through to the ratepayers through a lower overall cost of debt, and therefore lower return on rate base, which is the result of incorporating the debt cost of the government loan into the company's cost of debt."22 Park appears willing to see a water utility have the option to take either the CIAC or the long-term debt approach, with CIAC being the default.23

Class B Fruitridge Vista Water Company (Fruitridge Vista) believes Class B, C or D water utilities should be allowed to rate base plant funded by a government loan,24 citing burdens associated with such loans, such as "[m]andatory provisions in State contracts" that "put the company at great risk."

Both the Division of Ratepayer Advocates (DRA) and The Utility Reform Network (TURN) support the CIAC ratemaking approach, but they differ on the related issue of whether a water utility's efforts in securing, administering and assuming the liability of the loan, and the operation and maintenance demands of the replacement plant, ought to be considered subsequently in a cost of capital proceeding. DRA would support consideration of a one-time incentive award, whereas TURN sees no need for a specific incentive, arguing that no reward is in order for activities that it sees as coming within a utility's general obligation to serve.

The IOU parties25 and the ratepayer advocate parties disagree over the comparative cost to ratepayers between the two types of ratemaking treatment approaches for replacement plant funded by government loans: 1) including the plant in rate base (cost recovery through depreciation) and 2) treating the loan proceeds as CIAC (recovery of loan payments through surcharges). CWA offered a hypothetical example, involving a utility with a $4 million rate base, that factored the actual cost of a government loan into the utility's cost of capital with the purported results of avoiding both shareholder windfall and the administrative cost of separate loan accounting.26 DRA criticized CWA's example as being "overly simplified" and offered a variant hypothetical containing more factors.27 When the ALJ later invited the parties to revisit those estimates28 DRA revised its calculations slightly but stood by its position that surcharging would serve ratepayers better than would rate basing.29 Under DRA's revised calculations, with rate-basing ratepayers would pay $189,000 more over the life of the investment, and $78,000 more over the term of the loan, than would occur using the CIAC/surcharge approach.30 TURN backed DRA's position.31 CWA pointed to what it considered "serious errors" in the details of DRA's calculations,32 and Park agreed with CWA's position that DRA's calculations inflate the rate impact difference between the rate base and CIAC

approaches.33

Finally, some of the IOU parties argue that the CIAC approach does not make the water utility whole, in part because there are costs and risks associated with the ownership, operation and maintenance of the new plant, whatever the source of that plant's funding, for which the water utility ought to be compensated in some way.

In response to examples of risk identified by the parties,34 reproduced as Table 1 in section 4.3.2 of this decision, below, the DWA recommends that new plant funded by proceeds from damage awards, settlements, government order or insurance should be treated as CIAC because it believes that these risks are either mitigated through the existing cost recovery mechanisms or are within the ambit of an IOU's responsibilities as a regulated water utility.35 DWA further does not support rate basing such new plant because of the greater costs ratepayers allegedly would face as a result and because of the water contamination related costs (litigation and expert witness expenses, and costs associated with the replacement facilities or water supply replacements) that may not be covered by the water contamination proceeds and would ultimately be the ratepayers' responsibility. DWA reaches that position without respect to risks assumed by ratepayers and shareholders relative to the contamination occurrence and response.36

CWA wants new plant that replaces contaminated plant to be regarded as utility plant in service and placed in rate base. According to CWA:

DRA mischaracterizes the facts and thereby ignores the crucial burden of proof that must be met to justify denying a return on investment of utility funds. No one has proposed that "damage awards" be rate-based or that water utilities earn profits on funds they did not invest. DRA's rhetoric ignores a crucial step in the cash flow related to contamination proceeds. In most cases, the utility receives one or more cash payments from parties responsible for a contamination incident. Those funds become the property of the utility. The utility then invests those funds in utility plant - possibly replacement plant or treatment plant required to remediate the contamination incident or possibly other, unrelated plant. The ratemaking issue presented does not concern rate-basing of "damage awards," but instead the rate-basing of utility investment in utility plant where the utility investment is made with funds derived from "damage awards." The funds invested in that utility plant are the utility's funds, regardless of the source from which they are derived. [Emphasis in original.]

*****

In the case of contamination proceeds, if rate base treatment is going to be denied, the burden should rest on DRA or the Commission itself to justify a denial of normal rate treatment, which, in essence, would constitute a taking. If the reason for denying rate base treatment is that the funds invested were "contamination proceeds," then the challenge should address the particular facts and circumstances, including the utility's initiative to pursue recovery of the proceeds and the relevant costs and risks borne by the utility and its ratepayers in connection with the contamination incident, its remediation, and the associated litigation or settlement efforts.37

For determining what portions ought to be rate based and what portions treated as CIAC, CWA offers three principles38 summarized in the Workshop Report39 as follows:

1) The investment amount should be limited to "net" proceeds received from polluters, after allowance has been made for the utility to recover any outstanding expenses incurred in securing those proceeds and for any taxes or fees (especially income taxes) that the utility will have to pay for those proceeds.

2) The extent to which the utility's shareholders and the utility's ratepayers have borne those costs and risks from the contamination problem that led to the payment or conveyance of assets by the polluters to the utility.

3) The utility's management decisions to pursue the polluters through [a] litigation or settlement process, and the success with which they have executed those decisions by deploying resources and achieving litigation or settlement awards.

DRA sees no distinction between damage proceeds and government grant or loan proceeds as funding sources for new plant. In its view all those sources compel that the new plant be treated as CIAC because no shareholder investment is involved. In short, the absence of shareholder investment in plant leads DRA to find no grounds for rate basing that plant.40

TURN finds that CWA's three principles (described above) neglect an overarching principle that "dealing with water contamination remediation and damage recovery from third parties is a regular part of operating as a regulated water utility" and a reasonable presumption that "some amount of the associated costs are included in rates."41 TURN believes that any "risk that costs are not now and never will be included in rates is reflected in the authorized return on equity."42

Perceptions of risk and of who, between ratepayers and shareholders, assume the greater costs and risks in contamination occurrences underlie the positions taken by the IOUs and to a lesser extent DRA in the rate basing vs. CIAC debate over damage award type proceeds. In its June 1, 2009 comments CWA compared three contrasting circumstances regarding contamination damage award proceeds, each of which could warrant a customized approach in its judgment.43 As summarized in the Workshop Report,44 the sets of circumstances and approaches that CWA identifies are:

1) Where the "impact of a contamination problem has been reflected fully in rates charged to customers, through an allowance that fully covers the replacement cost of purchased water and another allowance that fully covers the legal costs of pursuing compensation from the polluters." Here [CWA concludes that] the "ratepayers will have shared a substantial portion of the risks and immediate costs arising from the contamination problem, and so a corresponding share of net proceeds invested in plant should be accounted for as CIAC."

2) Where the "contamination problem arises suddenly and the utility must respond to it without delay by acquiring new sources of water supply or constructing new facilities that are not provided for either by current rates or by an existing cost recovery mechanism and must undertake immediate legal action to forestall continuing pollution or hold the polluters accountable even though there is no allowance in the utility's present rates to cover such legal costs." Here [CWA concludes that]"the utility's shareholders are burdened by the considerable risks and costs with no assurance that any of the costs will be recoverable through rates, and so there will be no justification for treating as CIAC any more than a nominal share of net proceeds eventually recovered from the polluters."

3) Alternatively, "intermediate cases, involving a sharing of risks and immediate costs" are conceivable, such as where both a water quality memorandum account and a water quality litigation memorandum account exist and it can be concluded from that fact that "the risks presented by the contamination problem have been shared between ratepayers and shareholders," allowing "a consistent share of any net proceeds" to be "treated as CIAC."

San Gabriel echoed CWA's call for an individualized assessment of where the cost and risk burdens lie with its own comment:45

While dealing with contaminated water supplies imposes undeniable risks on both the water company and on the customers, the relative weight of those inherent risks can vary depending on the facts and circumstances of each case; e.g., who bears the risks and costs of remediation, litigation, liability, diminished property and water rights values, going-concern value, and utility plant that is rendered useless?

San Gabriel offered two case examples in support of its argument against a formulaic accounting approach. In the instance of the $182 million litigation settlement concerning the Baldwin Park Superfund site in San Gabriel's Los Angeles County Division, 94% or $171 million of the settlement has been categorized for remediation (treatment plants and 15 years of operation and maintenance costs) and 6% or $11 million is categorized as general damages. In that example, San Gabriel believes that:

By any reasonable measure, allocating all of the general damages to the company - a mere 6% of the total - is more than a fair and balanced split given the facts and circumstances in this case in which customers are assured that the water supply they depend on will be fully remediated and their water rates will be shielded from the resulting costs.46

The related expenses have been tracked in a memorandum account and await, pending resolution of the litigation, a cost recovery determination by the Commission.

The other case example cited by San Gabriel, the Mid Valley Landfill litigation in its Fontana Water Company Division, involved a $14 million settlement in which 48% or $7.8 million was categorized for remediation (treatment plant and 15 years of operation and maintenance) and 42% or $5.9 million was categorized as general damages. In the last general rate case47 the Commission reimbursed the operation and maintenance costs to the ratepayers and divided the balance of the settlement proceeds between the ratepayers (67%, in the form of rate base reduction) and the shareholders (33%). San Gabriel alleges that the allocation was done "without first accurately determining the amount of the net proceeds" and involved simply importing a ratio used in a rulemaking proceeding48 concerning the allocation of sales gains from no longer needed utility property. San Gabriel, which bore litigation expenses without a memorandum account and allegedly was burdened by all of the income tax liability resulting from the settlement, believes the outcome was unfair and "illustrates the danger of relying on an arbitrary, fixed allocation formula."49 In San Gabriel's view its two case examples show that "even if all the general damage proceeds in these cases were allocated to the company, the customers remain shielded from the capital and operating costs of remediating contaminated water supplies."50

The array of risks perceived by the parties as surrounding contamination occurrences was summarized in the following table in the Workshop Report.51

Table 1

IOUs

Examples of risks to the water utilities

DRA and TURN

Examples of risks to ratepayers

    1. Loss of water resources/interruption of supply;

    2. Lawsuits by parties claiming to be injured by contamination;

    3. Countersuits by polluters, claiming utility is a responsible party;

    4. Need to acquire/purchase new sources of supply;

    5. Need to install new plant to deliver new supply or to treat contaminated supply;

    6. Need to raise capital to fund above activities;

    7. Damage to reputation and brand;

    8. Diversion of management resources;

    9. Opportunity cost of funds- Money being tied down that could be channeled towards projects with higher returns.

10. Diminished value of water rights;

11. Litigation itself is a huge risk, if utility is a legal party to the case;

12. Legal responsibility for the costs of litigation and expert fees- water contamination costs are generally not forecasted in GRC; therefore the consequence of contamination falls on the utility until the next rate case cycle or beyond.

13. Regulatory risk associated with cost recovery.

    1. Many of the risks mentioned by the water utilities are addressed and utility is already compensated for in their ROE;

    2. Utilities raise many of these contamination specific risks in asking for a higher ROE;

    3. Ratepayer exposure to the contaminated water;

    4. Negative impact on customers' property value;

    5. Higher rates to pay for litigation, replacement water supply, and remediation costs;

    6. Risk to the ratepayers that they may need to pursue their own lawsuit to seek damages;

    7. Service interruption.

The DWA's general assessment of the risks enumerated above by the IOUs is set out in the Workshop Report.52 The DWA believes that some of the risks identified by the IOUs (numbers 1, 4-6, and 9) fall within a regulated water company's responsibility, another is not specific to a water contamination occurrence (number 7), others (numbers 8, 11 and 12) are worthy of consideration in either an allocation of proceeds between ratepayers and shareholders or in cost of capital proceedings, and another (number 13) is adequately addressed by California's "robust regulatory environment" as characterized in a cited Commission cost of capital decision.53

The CWA challenged DWA's assessment of the risks identified by the IOUs by emphasizing that risks should be assessed on a case-by-case basis and that risks are only part of what underlies the need for IOUs to have an incentive for pursuing cost recovery against polluters.54

As can be seen from the column of risks to ratepayers in Table 1 above, DRA and TURN argue that many of the risks asserted by the IOUs are reflected in their approved return on equity and accounted for in existing rates.55 The ratepayer advocates further see ratepayers assuming potential health, property value, service interruption and litigation expense burdens.

The IOUs repeatedly voiced the opinion that engaging in complex contamination litigation exacts extraordinary time and energy from a water company. The comments of Fruitridge Vista, which was awaiting trial in 2009 in a methl tertiary-butyl ether (MTBE) groundwater contamination lawsuit against Atlantic Richfield Oil and others that began in 1998, are illustrative:

[Fruitridge Vista's] efforts to date have required years of dedicated time, effort and expertise that is required outside of and in addition to normal water business hours and operations. It is this extra and special time that determines success or failure. Therefore, it is not only monetary risk that should be considered. The personal risk and dedication of the utility should also be considered. If the Commission were to categorically find that the monetary funding were the only criteria for rate basing, it would only discourage the PUC regulated water utility from investing the enormous effort to recover [proceeds]. This would in turn affect the rate payer negatively in two ways. First, the rate payer would have to immediately pay for the expense of replacement water. Second, the resulting lack of rate base would result in less capital available to the company to provide improvements to the system.... [T]he financial impact of the rate basing pales in comparison to the perseverance, dedication, effort and time required to sue and recover damages for water pollution. Ratepayers do not share in that time and risk involved.56

In section 5.5.1 below we address the suggestion that contamination litigation can be so onerous that it tests or crosses over the boundaries of the obligation to serve.

The parties appear to agree that new, replacement plant ought to be valued at its actual cost, not residual book value, if placed in the rate base. This is relevant for the one circumstance in which we determine in this decision that new plant funded by contamination proceeds should be rate-based, namely where an IOU uses some or all of the net proceeds it is allocated from damage awards, settlements, government order or insurance proceeds to invest in new, replacement plant. The actual cost approach is in accordance with the way the issue is addressed in the Uniform System of Accounts for Water Utilities and moots the accounting treatment sub-issues (previously scoped for this proceeding) concerning either any difference between book value and replacement cost or any reduction of replacement cost.

The Workshop Report recommends that the decision whether water contamination proceeds should be shared between ratepayers and utility shareholders "should be made on a case-by-case basis grounded on the facts of each case."57 While there was notable consensus on this general point during the workshop and in the comments in this proceeding,58 there was not consensus on the ancillary but very important issue of what portion of the proceeds (e.g., "net proceeds") should be subject to any sharing.

Under DRA's conception, net proceeds would be what is left from gross proceeds after litigation, remediation and "all other reasonable cost and expenses...that are the direct result and would not have to be incurred in the absence of such contamination."59 That conception appears compatible generally with the way the sharing issue has been posed in this rulemaking.60 In contrast, CWA views net proceeds as what is left over after deducting "expenses incurred in securing those proceeds" and related taxes and fees; the expenses of remediation, replacement and capital costs would not be deducted.61 That conception, while it reconstitutes the issue formerly scoped, has been known to the parties and participants since it was raised in the Workshop sessions.

Under DRA's approach, there would be no pool from which shares could be allocated until and unless the contamination event had been completely remediated and all related costs accounted for. The possibility of sharing would be contingent on there being excess proceeds after remediation or replacement. Under CWA's approach, allocation of proceeds between ratepayers and shareholders could occur before, during or after contamination-related remediation, replacement or capital investment, but CWA's definition of net proceeds would set the stage for an allocation determination as soon the litigation expenses were determined.

As noted above the IOU and ratepayer advocate parties see different risks at play in connection with contamination litigation. There ended up being wide agreement, but not total consensus,62 among the parties that any sharing, if it is to occur in any given case, can take into account the relative assumption of risks and costs by the ratepayers and shareholders. The utilities and the ratepayer advocates differ greatly, however, as to who, between the ratepayers and the shareholders, generally bears the bulk of the costs and risks surrounding a contamination occurrence.63 Throughout the Workshop and the commentary it was apparent that DRA and TURN generally perceive ratepayers to be the primary bearers of risk and cost in contamination occurrences, and that CWA and the individual party IOUs instead generally see shareholders in that position. Competing perceptions of fact, then, as well as definitions of net proceeds, lie at the heart of the issue of sharing.

DRA initially took the position that there should be no sharing of net contamination proceeds with shareholders,64 arguing that ratepayers normally and ultimately assume the costs and risks. But DRA's position evolved, or was clarified, to allow for an IOU that proves an assumption of risk to receive a small share of net proceeds.65

CWA believes that the comparative risks and costs assumed by ratepayers and shareholders relative to the contamination should guide sharing and that the allocation needs to result in an incentive for the utility to pursue cost recovery and to reward success.66

Reflecting those different perceptions of how risks are assumed in practice, the utility and ratepayer advocate parties offered examples of risks to shareholders and ratepayers. (See Table 1 above.)

Additionally, DRA suggested four other factors that could be expected to guide a determination of whether and how to allocate whatever portion of the proceeds is determined to be available for sharing:67

3. Complexity of litigation which could include factors such as number of parties to the litigation, the venue, how far the litigation progressed, whether the defendants were insured and/or their level of solvency, complexity and number of motions, [and] number and length of depositions.

4. Other risks within the litigation.

The California Water Association sees those factors largely as subsets or variants of the risks already cataloged by the parties68 and stands by its position, characterized as follows in the Workshop Report:69

From CWA's perspective the primary factors for the allocation of net proceeds are: defining net proceeds as proceeds net of the cost of obtaining them and associated taxes, and the recognition of cost and risk to company and shareholders; the initiative and the success of the utility in achieving the proceeds. CWA's position is that evaluation of these types of cases should be made on a case by case basis.

The parties' views as to the proper role of Commission precedent vary somewhat depending on whether the issue is cost allocation or accounting treatment. As to the cost allocation of contamination proceeds, there is a consensus that Commission decisions ought not to be controlling but rather reviewable for guidance. As to the ratemaking treatment of government loans, DRA urges adherence to D.06-03-015 (state government grants treated like CIAC) as precedent for not including such proceeds in rate base. The water utility parties find no precedential value in D.06-03-015 in relation to government loans.

15 Appendix A to D.06-03-015 contains "Rules for the Accounting of State Funds," the first of which provides that "[n]o return shall be earned by Commission regulated water utilities...on grant-funded plant."

16 Account 265 (Contributions in Aid of Construction).

17 The Quincy proceeding involved a state loan under the California Safe Drinking Water Act.

18 The DWA Workshop Report, at 5, paraphrases the four policy objectives articulated in the Quincy case as follows:

DWA bases its recommendation that government loans be treated as CIAC in part on the present worth analysis done by a witness from the Commission's Finance Division in the 1978 Quincy proceeding (D.88973) that showed greater benefits for the ratepayer under CIAC. (Workshop Report, at 8-9, including Table 2.)

19 June 1, 2009 Opening Comments of CWA in Response to Order Instituting Rulemaking, at 6.

20 Id. at 8.

21 June 1, 2009 Opening Comments of Park, at 2-3.

22 Ibid.

23 July 1, 2009 Reply Comments of Park, at 1-2.

24 May 28, 2009 Opening Comments of Fruitridge Vista to Issues Raised in Order Instituting Rulemaking, at 2. The reference to Class B, C or D utilities was made in the context of damage awards but under a subheading covering government loans. Ratebasing government funded plant is recommended by Fruitridge Vista in its July 1, 2009 Reply Comments, at 3 (unnumbered), without regard to water utility size or class.

25 Use of "IOU parties" abbreviation in this decision refers to California Water Service Company (Cal Water), San Gabriel, California-American Water Company(Cal-Am), Park, and Fruitridge Vista, and CWA (which also represents water utilities that are not directly or formally parties in this proceeding).

26 June 1, 2009 Opening Comments of CWA in Response to Order Instituting Rulemaking, at 7.

27 July 1, 2009 Response of the Division of Ratepayer Advocates, at 1-5. DRA added to its variant, which included surcharge calculations for comparative purposes, assumptions concerning accumulated depreciation reserve, annual depreciation rate, property tax rate, net-to-gross multiplier, loan life and a fixed annual loan payment. DRA, at 4-5, also cited D.08-09-002 (approval of zero-interest Safe Drinking Water State Revolving Fund loan for California Water Service) as an instance where the surcharge approach was chosen.

28 April 20, 2010 ALJ's Ruling Inviting Comments and Rescheduling Proposed Decision, at A-1.

29 Comments of DRA to ALJ's Ruling Inviting Comments, May 12, 2010, at 2.

30 May 28, 2010 Reply Comments of DRA, at 3, fn 5, to April 20, 2020 ALJ Ruling

31 Reply Comments of TURN to the ALJ's Ruling Inviting Comments and Rescheduling Proposed Decision, May 28, at 5. TURN alleged that its judgment took into account the "minor errors" that CWA had found in DRA's calculations. (Id. at 2.)

32 May 12, 2010 Opening Comments of CWA in Response to ALJ's Ruling, at 3-6. CWA believes DRA's calculation over-extends depreciation expense, fails to take account of deferred income taxes, exaggerates the expense of the cost of capital approach, shows that the primary added cost (property taxes) to ratepayers of the cost of capital approach does not benefit shareholders and reveals that the back-loaded costs of the cost of capital approach could maintain near-term value if the utility borrowed periodically from a government lender. CWA also complains that DRA's calculation of the cost of ratebasing, showing no change in the rate of return to reflect the inclusion of government loan interest rates, is "a `red herring,' aimed to distract attention from the very modest difference in cost to ratepayers, whether higher or lower, between the conventional cost of capital approach and DRA's preferred method of surcharge accounting." (Id. at 7.)

33 May 28, 2010 Reply Comments of Park to Parties' Opening Comments on the ALJ Ruling, at 2-3. Park also criticized "an underlying assumption in the debate on this issue...that the utility is made whole through the CIAC/surcharge method...," explaining:

34 Listed in the Workshop Report, at 12, Table 1.

35 Workshop Report, at 10.

36 (Ibid.) DWA does think that risks should be "considered in the IOU's cost of capital proceeding and in the Commission's evaluation of the allocation of water contamination proceeds between the ratepayers and the IOUs." (Ibid.)

37 February 2, 2010 Reply Comments of CWA on Workshop Report, at 2-3.

38 See June 1, 2009 Opening Comments of CWA in Response to OIR, at 9-10.

39 Workshop Report, at 10-11. The separate IOU parties generally supported these principles. Their individual positions are summarized in Appendix B of the Workshop Report.

40 June 1, 2009 Opening Comments and Recommendations of DRA, at 3.

41 July 1, 2009 Reply Comments of TURN on Issues Identified in Preliminary Scoping Memo, at 6.

42 Ibid. Hereafter, "return on equity" will be abbreviated as ROE.

43 June 1, 2009 Opening Comments of CWA in Response to OIR, at 10-11.

44 At 11.

45 June 1, 2009 Opening Comments of San Gabriel in Response to Order Instituting Rulemaking, at 1-2.

46 Id. at 4.

47 See D.07-04-046 as modified by D.08-04-005.

48 See D.06-05-041 and D.06-12-043.

49 June 1, 2009 Opening Comments of SGVWC in Response to Order Instituting Rulemaking, at 5.

50 Id. at 2.

51 Appendix A, at 12.

52 Workshop Report, at 16-17.

53 D.09-05-019, at 31-32.

54 May 12, 2010 Opening Comments of CWA in response to ALJ's Ruling, at 10-11.

55 DRA cited instances in the 2007-2009 period in which water IOUs referred to contamination as a risk factor in cost of capital proceedings. (See January 12, 2010 Opening Comments on Workshop Report by DRA, at 3-4.)

56 May 28, 2009 Opening Comments of Fruitridge Vista to Issues Raised in Order Instituting Rulemaking, at 3.

57 Workshop Report, November 25, 2009, at 18.

58 DRA took the initial position that IOUs should not share in net proceeds from damage awards (June 1, 2009 Opening Comments and Recommendations of DRA, at 7), but modified that stance in its January 12, 2010 Opening Comments on Workshop Report by DRA, at 5-6: "DRA is willing to accept DWA's recommendation that those proceeds should be shared and that how those proceeds will be shared will be determined on a case-by-case basis. DRA accepts that recommendation, however, with the observation that the IOU portion should always be relatively small."

59 Workshop Report, Attachment A, at 22.

60 As set out in the Assigned Commissioner's Ruling and Scoping Memo filed on August 21, 2009, as Issue No. 5, at 5, the question was whether sharing should occur "after all recoverable costs (e.g., legal and replacement costs) have been determined."

61 San Gabriel, with Cal Water's support, would include in gross proceeds future reimbursements for operation and maintenance costs. Workshop Report, Attachment A, at 22-23.

62 TURN believes that risks identified by the IOUs are accounted for in existing rates of return and that standardized rules rather than case-by-case balancing of factors are called for in this rulemaking. (See, e.g., May 28, 2010 Reply Comments of TURN to ALJ's Ruling, at 6.)

63 Workshop Report, at 10-12.

64 Id. at 18-19. DRA thought that normally the net proceeds (as it defined them) should be either returned to ratepayers (via rebate or a credit) or used to reduce rate base.

65 See January 12, 2010 Opening Comments on Workshop Report by DRA, at 5-7, and February 2, 2010 Reply Comments of DRA, at 4.

66 February 2, 2010 Reply Comments of CWA on Workshop Report, at 9.

67 January 12, 2010 Opening Comments on Workshop Report by DRA, at 6.

68 May 12, 2010 Opening Comments of CWA in Response to ALJ's Ruling, at 8-11.

69 Attachment A, at 8.

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