Positions of Golden State and DRA
Golden State proposes that the undepreciated book value of Hill Street should remain in rate base and earn the full authorized rate of return over the remainder of its life forecast before it ceased being used and useful to provide safe and reliable potable water to Bay Point customers. Golden State also proposes that the cost of the Contra Costa agreement should be added to rate base and it should earn a full rate of return over the life of the agreement. (Transcript at 510: 26-27.)
Golden State characterizes the agreement (among other things) as a "lease." Golden State's Treasurer testified that the agreement is neither an operating nor a capital lease as defined in generally accepted accounting principles. (Transcript at 501: 7-10.) The agreement, according to Golden State's Treasurer, is accounted for as a deferred asset because the company will have prepaid costs attributable to future periods.
Finally, Golden State characterizes a significant portion of the agreement's cost as "water rights" which it proposes to place in rate base not subject to amortization. The agreement, for Golden State's accounting and financial reporting purposes, is a prepayment which will be disclosed as a deferred asset on Golden State's balance sheet and will be amortized (allocated to expense in the income statement) over the life of the agreement.4
The Commission's Division of Ratepayer Advocates (DRA) investigated the two questions of abandoning Hill Street and the selection of the Contra Costa agreement in A.09-08-004. DRA filed opening and reply briefs again here. DRA opposes Golden State's proposals and recommends alternative ratemaking treatments for both Hill Street and the agreement with Contra Costa. According to DRA, "Golden State... has a simple request for the... ratepayers living in its Bay Point customer service area. It wants those ratepayers to pay it a rate of return on two water treatment plants. But one of these plants does not work and the other plant is not owned by [Golden State]." Therefore, according to DRA, Golden State "is asking its customers to pay twice, but is only delivering water once." (DRA Reply Brief at 1-2.)
DRA recommends the following ratemaking treatment for Hill Street and the Contra Costa agreement. First, the Commission should take the remaining undepreciated balance for Hill Street out of rate base, and amortize this amount in rates over 10 years,5 because Hill Street is no longer used or useful, provides no benefit to ratepayers, and therefore does not qualify for rate base treatment (including earning a full rate of return).6
DRA also argues the Contra Costa agreement is neither a true capitalized lease nor an intangible asset as the Commission has analyzed those concepts in prior decisions. (DRA Opening Brief at 8-9.) Thus, DRA argues the agreement should not be included in rate base but instead should be treated as a rental agreement, and as with any other rental agreement, Golden State should recover the cost as an operating expense. (Id. at 9-10.)
4 Testimony of Golden State's Treasurer, purportedly relying on the codified generally accepted accounting principles that determines the financial reporting of this transaction. (Transcript at 501.)
5 Ex. D-25, at 3, Lines 7-9.
6 Id. at 2-3.
