1. Summary
In this decision we address the schedule and process that Apple Valley Ranchos Water Company, California Water Service Company, Golden State Water Company and Park Water Company (applicants) use to recover from customers, or refund to customers, the annual net balance in their Water Revenue Adjustment Mechanisms and Modified Cost Balancing Accounts (WRAM/MCBA). We grant, in part, requested modifications to D.08-02-036, D.08-06-002, D.08-08-030, D.08-09-026, and D.09-05-005. We also grant the June 23, 2011 request of California-American Water Company to withdraw from this proceeding in order to avoid a conflict with similar proposals in its pending General Rate Case (GRC), Application 10-07-007.
The WRAM mechanism tracks the difference between the authorized revenue requirement and the actual revenues received by district for each applicant. The MCBA mechanism tracks the difference between the authorized and actual variable costs for purchased water, purchased power, and pump tax. The WRAMs and MCBAs were adopted as part of pilot programs to promote water conservation. They are intended to ensure that the applicants and their customers are proportionally affected when conservation rates are implemented, so that neither party suffers or benefits from the implementation.1
After the WRAM/MCBA mechanisms were first adopted in 2008, there have primarily been under-collections, and these under-collections are often quite substantial. Appendices B and C to this decision show the under-collections by district, or ratemaking unit, with some districts (1) reflecting over 20% of last authorized revenue requirement being undercollected in a year, and (2) cumulative surcharges representing multiple years of large under-collections.
Applicants want to shorten the existing amortization schedule for collection from customers of WRAM/MCBA account balances that are over 10% of last authorized revenue requirement. Their reasons for shortening the amortization schedule are (1) accounting standards of the Financial Accounting Standards Board that may require applicants to recognize high under-collections as deferred rather than current revenue, and (2) cash flow concerns arising from the length of the existing amortization schedule.
In the proposed decision mailed on March 19, 2012, rather than adopting parties' proposals, the assigned Administrative Law Judge proposed smaller adjustments to the WRAM/MCBA amortization schedule and also proposed a percentage cap on each year's surcharge of 7.5% of the last authorized revenue requirement. These proposals were made because of a concern that the mechanisms are not working as intended, for reasons that are not clear, and that the high under-collections experienced in many districts lead to substantial surcharges being passed through to customers without notice in Tier 1 Advice Letters.
In comments on the proposed decision, the joint applicants oppose the proposed amortization schedule and surcharge cap, as well as the proposed decision's focus on the substantial customer bill impacts of the surcharges rather than focusing on the financial accounting and cash flow impacts to applicants of a delay in collecting these account balances, as well as any "intergenerational equity" problem for ratepayers that may occur under longer amortization periods. In its comments, the Division of Ratepayer Advocates (DRA) supports the proposed decision's recommendations and finds the surcharge cap a reasonable safeguard for customers.2
Based on the comments, the proposed decision is revised to allow applicants to address existing large under-collections under their proposed alternative amortization schedule, which in most respects is the same as DRA's proposal, while requiring that (1) a more vigorous review of the WRAM/MCBA mechanism and options to the mechanism, as well as sales forecasting, be conducted in each applicant's pending or next GRC proceeding and (2) following that GRC review, a cap be placed on the total WRAM/MCBA surcharges of 10% of the last authorized revenue requirement. The revised amortization schedule and GRC effective dates for each applicant are shown at revised Appendix A. To implement these revisions, we allow advice letter filings for the 2011 WRAM/MCBA account balances to be made within 30 days after adoption of a decision in this proceeding or, where the applicant has already filed its advice letters, to allow applicant to update its filings based on a decision in this proceeding.
Finally, we address here the seven other requests of applicants for clarification and modification of the Advice Letter WRAM/MCBA balancing account procedures. The specific language we adopt to modify the underlying WRAM/MCBA decisions is set forth in Appendices E through H.
1 See D.08-02-36, issued February 29, 2008, mimeo at 25.
2 DRA's proposed safeguard is for the Commission to implement a formal review process when the annual WRAM/MCBA under-collection for a district is greater than 15% of the last authorized revenue requirement.
