Background
On August 22, 2011, California-American Water Company (Cal-Am) filed and served its amended application seeking Commission authorization to:
1. Collect a surcharge on Cal-Am's Monterey district customers to fund the Carmel River Mitigation Program performed by the Monterey Peninsula Water Management District (District);
2. Collect a surcharge on Cal-Am's Monterey district customers to fund the District's Phase 1 Aquifer Storage and Recovery Facilities; and
3. Establish a memorandum account to track Cal-Am's Phase 2 Aquifer Storage and Recovery Facilities.
Cal-Am requested that the amended application be categorized as ratesetting, with evidentiary hearings required.
The Division of Ratepayer Advocates (DRA) protested the amended application, preliminarily identifying issues with the District's proposed budgets and Cal-Am's proposed ratemaking. DRA did not rule out the possibility that evidentiary hearings would be necessary.
The District also protested the amended application. In its protest, the District agreed that it would implement the Carmel River Mitigation Program as proposed by Cal-Am, if approved by the Commission. The District, however, challenged the Commission's jurisdiction to review the costs and scope of the Mitigation Program, and contended that the District's own statutory authority gave the District the right to require Cal-Am to collect a user fee from Monterey District customers and remit the collections to the District. The District incorporated by reference the jurisdictional and legal arguments it had set forth in its rehearing application for Commission Decision (D.) 11-03-035, which focuses on the District's statutory authority to impose the user fee.
On October 14, 2011, the District filed its Petition for Modification of Decision 11-03-035. The petition contended that the settlement agreement rejected by the Commission in D.11-03-035 should instead be approved. The petition stated that the District has statutory authority to lawfully impose a user fee, and that the Commission should modify D.11-03-035 to allow Cal-Am to resume collecting the fee for the District.1
In the petition, the District also revealed that on May 26, 2011, it had adopted a resolution ordering Cal-Am to collect and remit the user fee. In response, Cal-Am filed on July 21, 2011, a Petition for Writ of Mandate and Complaint for Declaratory and Injunctive Relief against the District, captioned California-American Water Company v. Monterey Peninsula Water Management District, Monterey County Superior Court Case No. M113336.
The petition also included a copy of the Interim Implementation Agreement for 2011-2012 Carmel River Mitigation Program between Cal-Am and the District which provided for Cal-Am to fund the mitigation program for 2012. Cal-Am is recording these costs in a memorandum account, for recovery from its ratepayers.
On February 8, 2012, the assigned Administrative Law Judge (ALJ) convened a prehearing conference and the parties gave status updates on the pending litigation, the Carmel River mitigation program, and the Aquifer Storage and Recovery Project. Cal-Am and the District reported that a case management conference before the Monterey Superior Court was scheduled for March in the user fee lawsuit referenced above. Cal-Am and the District also reported that they had entered into an interim agreement to fund the portions of the District's Carmel River mitigation program that are Cal-Am's contingent responsibility, with annual costs for Cal-Am of $1.6 million. Cal-Am also reported that Phase 2 of the Aquifer Storage and Recovery Project, which consists of constructing a second well at the Seaside Middle School site, which is
Well 4 for the overall project, was scheduled for completion in 2013. In response to questioning from the assigned ALJ, Cal-Am indicated that moving up the projected in-service date to 2012 was likely feasible but would incur additional costs.
At the prehearing conference, the parties agreed that due to the urgent need for additional water supply in Cal-Am's Monterey district, Cal-Am should investigate the potential for moving up the projected in-service date for Phase 2 and file and serve a statement showing the forecasted cost for the accelerated construction. Cal-Am agreed to meet and confer with DRA regarding the revised costs. Also in that statement, Cal-Am agreed to provide an accounting and proposed recovery mechanism for the interim mitigation program costs. The parties agreed that any further procedural steps would also be requested in that filing.
On February 24, 2012, Cal-Am filed and served its revised costs for an expedited Phase 2, showing a 20% increase in labor costs, which brought the total estimated costs to $4.7 million from $4.2 million. This amount also includes a 20% project contingency, as well as 12% overheads for the project. Cal-Am will be contracting with the District to construct the well. Cal-Am proposed that the costs be recorded in a memorandum account as incurred, and when the project is completed, moved to base rates with a Tier 2 advice letter up to the cap of $4.7 million.2
DRA reviewed the projected costs and supported the proposed ratemaking for Phase 2.
Cal-Am also included its surcharge proposal to recover from its Monterey district customers the $1.6 million annual costs for its share of the Carmel River mitigation program. Cal-Am noted that on April 1, 2012, it will initiate a surcharge to recover from customers $5.5 million paid to the District during 2009 - 2011, and that surcharge of 11.7% will end in April 2013. Cal-Am proposed to move the additional $1.6 million per year in costs to the same balancing account, and to begin collecting the new costs after June 30, 2012, with an additional 5.42% surcharge. After adjusting to amortize transferred costs over 12 months, the projected surcharge increases to 15.37% for October 2012 to March 2013, and then drops to 5.42%.
Cal-Am's filing did not include DRA's position on the mitigation program costs or the proposed surcharge. No party requested further procedural steps, so the issues of the Aquifer Storage Phase 2 and the mitigation program funding required from Cal-Am were submitted for resolution by the Commission on March 28, 2012. Cal-Am also reported that on February 23, 2012, the District's Board of Directors authorized a rate study that is a precursor to placing a new tax on parcels within the District to generate additional revenue for the District.3
1 Petition to Modify at 25.
2 Cal-Am would be required to obtain Commission authorization for any costs above the cap either with a Tier 3 advice letter or in a general rate case.
3 In its filing, Cal-Am repeated its request for surcharge to fund the District's Aquifer Storage and Recovery Project Phase 1 costs. Those costs, some of which are from 2005, are part of the user fee matter being litigated in Monterey Superior Court.
