5. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Christine M. Walwyn is the assigned ALJ and presiding officer in this proceeding.

1. Attached to this decision are Appendices A-H. These appendices are:

_ Appendix A: Comparison of Existing and Proposed WRAM/MCBA Amortization Schedules;

_ Appendix B: Estimated 2012 WRAM/MCBA Surcharges Under Existing and Proposed Amortization Schedules;

_ Appendix C: Advice Letter Filings for 2008, 2009, and 2010 Net WRAM/MCBA Account Balances;

_ Appendix D: DRA Table Showing Applicants' Districts in Order of Greatest 2010 Under-collections (as a Percentage of Last Authorized Revenue Requirement);

_ Appendix E: Modifications to D.08-02-036;

_ Appendix F: Modifications to D.08-08-030;

_ Appendix G: Modifications to D.08-09-026; and

_ Appendix H: Modifications to D.09-05-005.

2. This joint application was filed by Cal-Am, Cal Water, Golden State, Park, and Apple Valley to modify the amortization process and procedures of the decisions granting them a WRAM/MCBA mechanisms.

3. Applicant Cal-Am has moved to withdraw from this proceeding and to have its requests addressed in its pending GRC.

4. The Cal-Am GRC is better suited than this proceeding to comprehensively address Cal-Am's WRAM/MCBA issues.

5. The WRAM/MCBA mechanisms are part of pilot programs to promote water conservation. The mechanisms were designed to ensure that applicants and their customers are proportionally affected when conservation rates are implemented, so that neither party suffers nor benefits from the implementation of those rates.

6. Each applicant's GRC proceeding, undertaken every three years, includes scrutiny of the underlying sales forecasts and projected water supply costs by the Commission, its staff, and interested parties, with all customers given notice and an opportunity to be heard.

7. A GRC proceeding is the forum in which the Commission is best able to address high rate increase impacts.

8. The existing amortization schedule for net WRAM/MCBA account balances is the same as adopted by the Commission for all water balancing accounts in R.01-12-009, and reflected in DWA's Standard Practice U-27W. The Commission did not provide a different amortization schedule when it authorized the WRAM/MCBA balancing account mechanisms.

9. The adopted sales forecasts may have played a significant role in causing the high WRAM/MCBA under-collections. These forecasts were typically included as part of settlements in the GRCs. With a WRAM/MCBA mechanism in place, the applicants may have an incentive to make or agree to a high sales forecast. If actual sales revenue fell below authorized revenue requirement (which is likely to happen given a high sales forecast), applicants would return the following year(s) of the GRC cycle to seek surcharges through the Advice Letter process.

10. In adopting the WRAM/MCBA mechanisms, the Commission did not anticipate the high under-collections that have occurred. Rather, the Commission expected lower levels of under-collections, and approximately a balance of under- and over-collections, similar to the Commission's experience over the last 20 years with revenue adjustment mechanisms for California's electric utilities.

11. Applicants' proposals to shorten the amortization period for net WRAM/MCBA under-collections could expose customers to substantial rate increases without any notice or opportunity to be heard. For example, under these proposals, the WRAM/MCBA amortization period could in some circumstances double the associated surcharge on a customer's bill.

12. Changing the date applicants submit their annual WRAM/MCBA report from March 31st to the previous November 30th would allow Commission staff to begin review of the account balances earlier, with nine months of data through September 30th, rather than waiting for the entire year's data to be reported in 30 days before the annual Advice Letter is submitted.

13. Applicants can now choose their own accounting method, such as FIFO, to match the surcharges/surcredits with each year's WRAM/MCBA account balances.

14. On February 1, 2012, by ALJ ruling, the record was reopened for the limited purpose of directing applicants to submit information required under Rule 16.4(b). Applicants timely complied with the ruling and the matter is resubmitted on February 13, 2012.

1. Cal-Am's September 8, 2011 Motion to Withdraw from this proceeding should be granted.

2. The scope of this proceeding is limited to the nine amortization schedule and process issues set forth in the application. Further review of the WRAM/MCBA mechanisms should be undertaken in each applicant's GRC proceeding, and the risk consequences of the mechanisms should be evaluated in applicants' consolidated cost of capital proceedings.

3. It is reasonable to limit the level of WRAM/MCBA surcharges passed through on customers' bills by Tier 1 Advice Letters to 10% of the last authorized revenue requirement.

4. Recognizing that existing WRAM/MCBA account balances in some districts present practical problems for the implementation of a cap on total WRAM/MCBA surcharges, we should 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, until the first test year after each applicant's pending or next GRC proceeding. The adopted amortization schedule and dates for implementation of a cap on total net WRAM/MCBA surcharges of 10% of the last authorized revenue requirement is set forth at Appendix A.

5. We should require a more vigorous review of the WRAM/MCBA mechanisms and options to the mechanisms, as well as sales forecasting, be conducted each applicant's pending or next GRC proceeding. We find it reasonable to specify here that in each upcoming GRC proceeding, applicants provide testimony that at a minimum addresses the following options:

- Option 1: Should the Commission adopt a Monterey-style WRAM rather than the existing full WRAM? The Monterey-style WRAM is not a revenue decoupling mechanism as such, it is rather a revenue adjustment mechanism that allows the utility to true-up the revenue it actually recovers under its conservation rate design with the revenue it would have collected if it had an equivalent uniform rate design at actual sales levels.

- Option 2: Should the Commission adopt a mechanism that bands the level of recovery, or refund, of account balances based on the relative size of the account balance. For example, an annual WRAM/MCBA under-collection/over-collection less than 5% of the last authorized revenue requirement would be amortized to provide 100% recovery/refund, balances between 5-10% would be amortized to provide only 90% recovery/refund, and balances over 10% would be amortized to provide only 80% recovery/refund.

- Option 3: Should the Commission place WRAM/MCBA surcharges only on higher tiered volumes of usage, thereby benefiting customers who have usage only in Tier 1 or have reduced their usage in the higher tier levels?

- Option 4: Should the Commission eliminate the WRAM mechanism?

- Option 5: Should the Commission move all customer classes to increasing block rate design and extend the WRAM/MCBA mechanisms to these classes?

For current GRC proceedings for Golden State and Park, the assigned ALJs to those proceedings may chose to not require supplemental testimony on these options but rather conduct a different WRAM/MCBA mechanism review.

6. It is reasonable to adopt a "trigger" level of 2% of a water district's "last authorized revenue requirement" for when an applicant must request to amortize a WRAM/MCBA balancing account in an annual Advice Letter.

7. It is reasonable to require that net WRAM/MCBA over-collections be amortized through a surcredit on a customer's service charges and that all under-collections be amortized through a surcharge on the volumetric rate.

8. It is reasonable to change the deadline for applicants to submit their annual WRAM/MCBA report from March 31st to the previous November 30th, and to include nine months of recorded data through September 30th in the report.

9. A Tier 1 Advice Letter is reasonable for annual requests to amortize net WRAM/MCBA account balances because pursuant to General Rule 7.5.3, if DWA finds a defect in the Advice Letter after it has become effective, the utility must promptly submit an Advice Letter setting forth a remedial plan both to make prospective adjustments and correct for past errors. If a utility fails to submit a timely or satisfactory revision after notice by DWA, the Commission may impose a penalty and/or take such other actions as may be appropriate to protect consumers and ensure compliance with the law.

10. No good cause exists to require a specific accounting method for applicants to use to match the surcharges/surcredits with each year's WRAM/MCBA account balance.

11. Annual requests to amortize net WRAM/MCBA balances accumulated during the previous calendar year should be filed by Tier 1 Advice Letter on or before March 31st.

12. Due to the timing of this proceeding, we grant an exception to the March 31st date for requesting to amortize 2011 account balances. Advice letter filings for the 2011 account balances may be made within 30 days after adoption of a decision in this proceeding, with any applicant who has already filed its advice letter permitted to update its filing to reflect the amortization schedule adopted here within 30 days after adoption of a decision in this proceeding.

13. It is unreasonable to accelerate amortization of 2010 WRAM/MCBA balances. Such amortization would result in excessive impacts in many districts in 2012.

14. No additional type or category of cost should be included in the Tier 1 Advice Letters that were not included in the Annual Report.

15. Cal Water should modify its billing system within 90 days of the effective date of this decision to provide a separate line item showing WRAM/MCBA surcharges on its customers' bills and submit an informational only Advice Letter when the modification is operational.

16. Today's decision should be made effective immediately.

ORDER

IT IS ORDERED that:

1. California-American Water Company's September 8, 2011 Motion to Withdraw is granted.

2. Applicants are required to amortize net Water Revenue Adjustment Mechanism/Modified Cost Balancing Account balances at or above 2% of their last authorized revenue requirement and are permitted to amortize balances below that percentage, on an annual basis.

3. We adopt the amortization schedule set forth in Appendix A with a cap on total net Water Revenue Adjustment Mechanism/Modified Cost Balancing Account (WRAM/MCBA) surcharges of 10% of the last authorized revenue requirement. The cap shall be effective the first test year of each applicant's pending or next General Rate Case, as follows:

- Golden State and Park: Advice Letter filings on March 2014

- Cal Water: Advice Letter filings on March 2015

- Apple Valley: Advice Letter filing on March 2016

WRAM/MCBA account balances incurred prior to the first test year referenced above continue to be amortized under the adopted amortization schedule without being subject to the surcharge cap.

4. We require a more vigorous review of the Water Revenue Adjustment Mechanism/Modified Cost Balancing Account (WRAM/MCBA) mechanisms and options to the mechanisms, as well as sales forecasting, be conducted each applicant's pending or next General Rate Case (GRC) proceeding. In each upcoming GRC proceeding, applicants shall provide testimony that at a minimum addresses the following options:

- Option 1: Should the Commission adopt a Monterey-style WRAM rather than the existing full WRAM? The Monterey-style WRAM is not a revenue decoupling mechanism as such, it is rather a revenue adjustment mechanism that allows the utility to true-up the revenue it actually recovers under its conservation rate design with the revenue it would have collected if it had an equivalent uniform rate design at actual sales levels.

- Option 2: Should the Commission adopt a mechanism that bands the level of recovery, or refund, of account balances based on the relative size of the account balance. For example, an annual WRAM/MCBA under-collection/over-collection less than 5% of the last authorized revenue requirement would be amortized to provide 100% recovery/refund, balances between 5-10% would be amortized to provide only 90% recovery/refund, and balances over 10% would be amortized to provide only 80% recovery/refund.

- Option 3: Should the Commission place WRAM/MCBA surcharges only on higher tiered volumes of usage, thereby benefiting customers who have usage only in Tier 1 or have reduced their usage in the higher tier levels?

- Option 4: Should the Commission eliminate the WRAM mechanism?

- Option 5: Should the Commission move all customer classes to increasing block rate design and extend the WRAM/MCBA mechanisms to these classes?

For current GRC proceedings for Golden State and Park, the assigned Administrative Law Judges to those proceedings may chose to not require supplemental testimony on these options but rather conduct a different WRAM/MCBA mechanism review.

5. Applicants must submit their annual requests for amortization of net Water Revenue Adjustment Mechanism/Modified Cost Balancing Account balances by a Tier 1 Advice Letter on or before March 31st.

6. Due to the timing of this proceeding, we grant an exception to the March 31st date for requesting to amortize 2011 account balances. Advice letter filings for the 2011 account balances may be made within 30 days after adoption of a decision in this proceeding, with any applicant who has already filed its advice letter permitted to update its filing to reflect the amortization schedule adopted here within 30 days after adoption of a decision in this proceeding.

7. No good cause exists to require a specific accounting method for applicants to use to match the surcharges/surcredits with each year's Water Revenue Adjustment Mechanism/Modified Cost Balancing Account balance.

8. Applicants' request to accelerate amortization of 2010 Water Revenue Adjustment Mechanism/Modified Cost Balancing Account balances is denied.

9. Applicants cannot include any additional type or category of cost in their Tier 1 Advice Letters that was not included in their Annual Report.

10. California Water Company must modify its billing system within 90 days of the effective date of this decision to provide a separate line item showing Water Revenue Adjustment Mechanism/Modified Cost Balancing Account surcharges on its customers' bills and submit an informational only Advice Letter when the modification is operational.

11. In order to adopt the amortization procedures in Ordering Paragraphs 2, 4, 5, and 6, Decision (D.) 08-02-036, D.08-08-030, D.08-09-026, and D.09-05-005 are modified as set forth in the following Appendices. In all other respects, applicants' request to modify these decisions is denied. These attached Appendices are:

_ Appendix E: Modifications to D.08-02-036

_ Appendix F: Modifications to D.08-08-030

_ Appendix G: Modifications to D.08-09-026

_ Appendix H: Modifications to D.09-05-005

12. Application 10-09-017 is closed.

This order is effective today.

Dated April 19, 2012, at San Francisco, California.

Previous PageTop Of PageGo To First Page