Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Douglas M. Long is the assigned ALJ in this proceeding.
Findings of Fact
1. The Commission has already determined that Golden State must abandon Hill Street.
2. The Commission has already approved the water purchase agreement in D.10-06-031, finding the agreement the most viable option to replace the water from Hill Street, in that purchasing water from Contra Costa was the best of the limited available alternatives.
3. The Commission's practice is to allow the recovery of the undepreciated investment balance on abandoned plant. It is reasonable to use Golden State's 2011 incremental cost of debt in the Temporary Interest Rate Balancing Account as the carrying costs for amortization purposes.
4. Six year amortization is a compromise between immediate recovery of the undepreciated investment balance on the abandoned plant, and a theoretical forecast of useful life on a modified plant. It will mitigate rate shock to ratepayers and not delay Golden State's recovery of its investment.
5. Depreciation is not the appropriate recovery mechanism for abandoned large plant.
6. The water purchase agreement with Contra Costa is a long term water purchase agreement, not a lease of the facility.
7. The two payment options for the water purchase agreement with Contra Costa are both a prepaid expense.
8. The 2011 incremental cost of debt in the Temporary Interest Rate Balancing Account reasonably compensates Golden State while amortizing the water purchase agreement prepayments of capacity charges.
9. A six-year amortization of the water purchase agreement's prepayment is a compromise between full recovery immediately and amortizing the capacity charge payment over the life of the agreement. It will lessen rate shock to customers and timely reimburse Golden State.
10. The original Section 4.2.1 of the agreement with Contra Cost reflects Golden State's preferred ratemaking treatment for prepayments under the agreement. Under Commission precedent regarding such agreements, payments by the utility are treated as an expense, not an investment by the utility.
11. Section 4.2.1 has been amended.
Conclusions of Law
1. It is reasonable to allow Golden State the undepreciated investment balance for Hill Street without a return on equity because the investment is no longer used and useful.
2. It is reasonable for Golden State to recover its incremental cost of debt on the undepreciated investment balance for the Hill Street facility while the balance is subject to amortization. The same incremental cost of debt should be used to compensate Golden State wile amortizing the water purchase agreement capacity charge prepayments.
3. It is not reasonable to capitalize the water purchase agreement because it is not an investment suitable for inclusion in rate base.
4. It is reasonable to amortize in rates the capacity charge prepayments under the water purchase agreement and the amortization of the undepreciated Hill Street investment balance to avoid rate shock.
5. Section 4.2.1 of the Contra Costa water purchase agreement was reasonably amended.
6. The water purchase agreement with Contra Costa should have correctly characterized the agreement as a purchase agreement and not a lease.
7. Today's order should be made effective immediately.
ORDER
Therefore IT IS ORDERED that:
1. Golden State Water Company must amortize the prepayment of the water purchase agreement capacity charges with Contra Costa Water District over six years and may only accrue interest using its incremental cost of debt in its Temporary Interest Rate Balancing Account on the unamortized balance. Golden State must file a Tier 1 advice letter to implement this amortization within 14 days of the effective date of this decision.
2. Golden State Water Company must amortize the undepreciated Hill Street Water Treatment Facility investment over six years and may only accrue interest using its incremental cost of debt in its Temporary Interest Rate Balancing Account on the unamortized balance. Golden State must file a Tier 1 advice letter to implement this amortization within 14 days of the effective date of this decision.
3. Application 10-01-009 remains open for another matter.
This order is effective today.
Dated September 8, 2011, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
MICHEL PETER FLORIO
CATHERINE J.K. SANDOVAL
MARK J. FERRON
Commissioners
APPENDIX A
LIST OF APPEARANCES
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Don Ward |
(END OF APPENDIX A)
