9. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Christine M. Walwyn is the assigned ALJ in this proceeding.
1. On September 22, 2010, Cal-Am filed this application for authorization to implement the Project.
2. The Project addresses longstanding seismic issues associated with the Dam, provides significant environmental benefits, and, due to an innovative public/private partnership, will not cost Cal-Am's customers any more than the least-cost option Cal-Am analyzed for addressing the Dam's seismic safety concerns.
3. Cal-Am's partnership on the Project is with the State Coastal Conservancy and the NMFS.
4. On October 29, 2010, DRA and the MPWMD separately protested the application. A late-filed motion to intervene was filed by the PCLF and granted the same day.
5. Public participation hearings were held in Monterey and Seaside on February 7 and 8, 2011, and evidentiary hearings were held in San Francisco on June 8-13, 2011.
6. The Dam was constructed in 1921 and has been owned by Cal-Am since 1966. In 1980, the Department of Water Resources DSOD requested that Cal-Am evaluate the ability of the Dam to safely pass a probable maximum flood and withstand a maximum credible earthquake. In 1992, the DSOD directed Cal-Am to improve the Dam so that it could meet current seismic safety standards.
7. In 1992, two species present in the Carmel River watershed, the South-Central California Coast steelhead and the California red-legged frog, were listed as candidates for study pursuant to the Federal Endangered Species Act of 1973. The red-legged frog was designated as "threatened" in 1996, followed by the steelhead in 1997.
8. Cal-Am proposed and supported buttressing, or thickening, the Dam as its preferred alternative throughout two EIRs and one EIR/EIS, while simultaneously working to develop a feasible dam removal alternative.
9. A draft EIR was first issued for review on December 23, 1998 by the DSOD. In a letter dated February 12, 1999, the NMFS submitted comments stating that (1) in the draft EIR the selection of alternatives was compromised by flawed or omitted analyses, and (2) a dam removal alternative would be far more beneficial than the preferred alternative.
10. Due to extensive public and agency comments, the DSOD issued a second EIR, referred to as the RDEIR in 2000.
11. After receiving further critical comment, the DSOD withdrew the RDEIR in 2002. Cal-Am began meeting with NMFS, DSOD and others to develop a dam removal project. Cal-Am spent resources on geotechnical and survey work for dam removal and to develop a computer model to evaluate sediment transport on the Carmel River.
12. In 2002 the DSOD directed Cal-Am to undertake interim Dam safety actions, which included (1) installing an emergency seismic monitoring system and emergency action plan, and (2) lowering the level of the reservoir behind the Dam through annual water drawdowns.
13. A combined EIR/EIS process, designed to meet both federal and state environmental review requirements, was initiated by DSOD in 2004 with the U.S. Army Corp of Engineers. During the scoping process, a new alternative, Dam removal, was added.
14. A Draft EIR/EIS was released in 2006 that included both the dam buttressing project and the Carmel River Reroute and San Clemente Dam Removal. In December 2007, the DSOD certified the Final EIR/EIS, and in February 2008, the DSOD confirmed that both dam buttressing or dam removal and river reroute would have environmental impacts that are not materially different and would alleviate the Dam safety deficiencies.
15. Since 2000, the Conservancy has funded studies to explore Dam removal options and after the 2006 Draft EIR/EIS included the reroute and removal option as an alternative, the Conservancy in 2007 funded over $700,000 in studies to further evaluate alternatives.
16. In an April 3, 2000 letter to the U.S. Army Corps of Engineers, copied to Cal-Am, NMFS states that Cal-Am has chosen not to seriously consider a Dam removal option, even though several natural resource organizations have set this as a priority for funding and support.
17. After the final EIR/EIS included the Carmel River Reroute and Dam removal as a feasible alternative under CEQA/NEPA, Cal-Am in 2008 engaged the Conservancy and NMFS in a dialogue about implementing the alternative because it was still unclear whether the Reroute and Dam Removal project was feasible from a technological, financial, regulatory, or risk standpoint; Cal-Am abandoned these discussions in February 2009 due to concerns regarding liability and the availability of state funding to assist with this alternative to Dam buttressing because the Company concluded the project would not be feasible without public funding.
18. In January 2010, Cal-Am and various federal, state, and local officials signed a Collaboration Statement to pursue the Project set forth in this application. At that time, the signatories acknowledged that it still had to be determined whether reroute and removal would be the superior project with respect to costs and liabilities.
19. In August 2010, the BLM made a preliminary commitment to take the land upon project completion.
20. The Project is anticipated to start construction in 2012 and be completed within approximately three years. When the Project is completed, the BLM has given a preliminary commitment to accept donation of the land surrounding the Project for long-term management.
21. All parties to this proceeding agree that Cal-Am must address the seismic and flood safety issues of the current Dam and that the Project proposed in this application is the best alternative to do so.
22. Cal-Am was required by the DSOD, to evaluate the ability of the Dam to safely pass the Probable Maximum Flood and withstand the Maximum Credible Earthquake.
23. Cal-Am was directed by the DSOD to improve the Dam so that it would meet current seismic safety standards.
24. Cal-Am undertook buttressing activities upon a DSOD directive to satisfy current seismic safety standards so that the dam can safely pass a probable maximum flood and withstand a maximum credible earthquake.
25. The Dam is an authorized point of water rediversion under State Water Resources Control Board License 11866 for rediverting water at Los Padres Dam and is an authorized point of water rediversion under the joint Cal-Am/MPWMD Aquifer Storage and Recovery Project under State Water Resources Board permit 20808A and draft permit 20808C.
26. Cal-Am had requested DSOD to consider the option of dam removal in its first EIR.
27. Cal-Am's dam safety problems are independent of the reservoir sedimentation issue.
28. Cal-Am ceased using the Dam as a water supply diversion point to the filter plant during the 2002-2003 water year. The dam is currently used as an authorized point of rediversion for water diverted at Los Padres Dam and is an authorized point of diversion for water for aquifer storage and recovery. The 2001 Conservation Agreement between NMFS and Cal-Am requires Cal-Am to cease withdrawal of water at San Clemente Dam during low-flow periods. Cal-Am still has the right to draw water during high-flow periods and in emergencies.
29. The Dam is maintaining in place approximately 2.5 million cubic yards of accumulated sediment that would negatively impact property and the environment if it were released uncontrolled into the downstream environs of the Carmel River.
30. The Dam provides benefit as an emergency water source because it is vital to protect from the movement of the sediment and is an option available in emergency situations.
31. The Bureau of Reclamation states that the most common practice by federal and state water resource agencies is to allow continual sedimentation in reservoirs. This is what Cal-Am has done.
32. The cost to remove the accumulated sediment at the Dam would be quite expensive, specifically dredging costs of $12 to $30 per cubic yard for the 2.5 million cubic yards of accumulated sediment, and removing it would require 125,000 truckloads at 20 cubic yards per truckload.
33. In addition to the $49 million for Project costs, Cal-Am seeks rate recovery for $26,802,658, exclusive of $560,000 of post-construction mitigation costs and authorized cost of capital accrued to the memorandum account from January 1, 2012 through June 30, 2012, for cost related to its San Clemente Dam memorandum account and its initial surcharge. DRA recommend that the Commission approve only $100,654, the amount of properly tracked expenses for repairs and compliance costs when the Dam was used and useful
34. In reviewing the costs Cal-Am requests be recovered through the San Clemente Dam memorandum or in the initial surcharge:
(a) Cal-Am provided substantiation for its pre-2002 costs of $4,406,700;
(b) Cal-Am provided adequate justification for seven post-2002 contracts totaling $3,153,628;
(c) Cal-Am included compliance and maintenance costs for the Dam and costs it incurred in pursuit of a solution to the dam's seismic safety issue; these tracked costs total $6,298,038;
(d) Cal-Am included $7,957,270 in interest, company labor and utility plant overhead, and corporate charges related to the above costs through October 31, 2010 and an additional $2,577,751 in estimated interest through December 31, 2012; and
(e) Cal-Am demonstrated that it has processes and procedures in place to ensure that it engaged the best-qualified and most cost-effective vendors for $2,500,000 in estimated costs for interim Dam safety and environmental costs for the period November 1, 2010 to the time of Dam removal.
(f) Cal-Am has provided reasonable estimates of post-construction mitigation costs of approximately $370,000 in the first year after project completion, followed by annual costs of approximately $190,000 in the second year through the tenth year after project completion.
35. The Commission's approval of $49 million for ratepayer recovery of estimated Project costs will allow the Project to go forward on a timely basis and construction to meet the September 2012 start date requested by the DSOD.
36. The Sleepy Hollow Steelhead Rearing Facility currently operated by the MPWMD will remain a viable operation as long as it is necessary.
37. A 1.5 million gallon concrete water storage tank located on Cal-Am's 77.6 acre Parcel 417-051-003-000 and maintained by Cal-Am is being used to provide public utility service to its customers.
38. The diverting of water from the Dam, taking it to the filter plant below the dam, treating the water, and sending it to Cal-Am customers has not occurred since 2003.
39. Cal-Am can continue to divert water into the Dam pursuant to licenses issued by the State Water Resources Control Board and is authorized to extract water from the dam in emergencies.
40. Public Utilities Code Section 1804(a)(1) provides for in cases where the schedule would not reasonably allow parties to identify issues within the timeframe set for in statues, or where new issues emerge subsequent to the time set for filing, the commission may determine appropriate procedure for accepting new or revised NOIs.
41. Appendix 2 sets forth the initial revenue requirement and customer surcharge.
1. We should authorize Cal-Am to implement the Project, in partnership with the Conservancy and NMFS.
2. The Dam has been and is a used and useful asset for ratemaking purposes.
3. Cal-Am's pursuit of Dam buttressing as its preferred alternative through three EIRs while simultaneously working to develop a feasible dam removal process was prudent in light of information available to its management at the time and meets the Commission's "reasonable manager" standard.
4. A modified buttressing project is feasible.
5. We find that ratepayers should pay the reasonable costs associated with decommissioning, or retiring the Dam.
6. The Project design as proposed, the recently updated costs estimates attached to this decision at Appendix 1, and the Project oversight of the technical team assembled by the Conservancy are reasonable.
7. A construction cost cap of $49 million, offset by the actual tax benefit of Cal-Am's land donation when it occurs, plus interim safety and compliance costs and post-construction mitigation cost, earning Cal-Am's full rate of return, is a reasonable prospective cost responsibility from ratepayers to the Project. Cal-Am should be allowed to file an application seeking authority to raise the cost cap, if needed. It is also reasonable for Cal-Am to recover the costs it has tracked in the San Clemente Dam memorandum account (memorandum account).
8. Cal-Am's shareholders should earn an equity return on the Project because the costs are for the removal of plant in service, and the amortization period is 20 years. The equity return will be based on the authorized cost of capital return determined by the Commission and adjusted in future cost-of-capital proceedings.
9. A reasonable incremental cost of debt for the Project is Cal-Am's weighted average cost of debt.
10. Cal-Am's historical memorandum costs is appropriate for use because Cal-Am pursued its Dam buttressing proposal in a period of great uncertainty for utility planners and exercise reasonable managerial skill in identifying and assessing the risks of its proposal or properly analyze and assess alternative options.
11. Cal-Am should be allowed to recover its costs accumulated in its San Clemente Dam memorandum account.
12. We should authorize rate recovery of the historical and prospective Project-related costs as concluded in our rate recovery mechanism discussion in the body of this decision.
13. Cal-Am's portion of any Project cost savings should be taken into account in the reassessed revenue requirement when the project is recovered through base rates during the first general rate case after completion of the project.
14. Cal-Am's land parcels identified at Exhibit 18 as Parcels 417-051-004-000, 417-051-005-000, 417-051-011-000, and 417-051-010-000 should be considered as part of the Project and ratepayers should receive credit through the regulatory asset account for any monetary value received, either through sale or through a tax benefit from donation.
15. Cal-Am's 77.6 acre Parcel 417-051-003-001 being used to provide public utility service to its customers should not be included as a component of the Project.
16. Cal-Am should discuss the status of the facility in each quarterly status report it files on the Project.
17. All entries and supporting documentation for the San Clemente Dam balancing account and regulatory asset account should be reviewed in each subsequent general rate case.
18. Cal-Am should file a quarterly status report on the Project with the Division of Water and Audits, with copies to the service list of this proceeding, until the Project is completed and transferred to BLM. In this report Cal-Am should provide an account of the Project's progress and confirm that it is consistently following its own internal written guidelines for bidding processes, as well as provide the balance of the regulatory asset/balancing account.
19. Exhibit 24 contains confidential information, as described in Cal-Am's
July 7, 2010 motion. Pursuant to General Order 66-C, this exhibit should remain sealed until January 1, 2018.
20. There are two types of diversion that impact the dam. The first is extracting water from the dam for customer use and the other is diverting water to the dam from other sources.
21. PCLF should be found eligible for intervenor compensation in this proceeding. However, this eligibility does not ensure that it will be awarded any compensation.
IT IS ORDERED that:
1. California-American Water Company (Cal-Am) is authorized to implement the Carmel River Reroute and San Clemente Dam Removal Project, in partnership with the California State Coastal Conservancy and the National Marine Fisheries Services, under the terms and conditions set forth below in Ordering Paragraphs 2, 3, 4, and 5. Cal-Am's construction project cost cap is $49 million, excluding the pre-construction costs and its related interest, interim dam safety and environmental costs for annual drawdowns and post-construction mitigation costs. However, upon need, Cal-Am may file an application seeking authority to change its project cost cap. Cal-Am is also authorized to include interim safety and compliance costs, and post-construction mitigation costs in a balancing account.
2. Beginning July 1, 2012, we authorize rate recovery for the Carmel River Reroute and San Clemente Dam Removal Project (Project) as follows:
a. The project will be a stand-alone ratemaking item until the first General Rate Case after the final review of all project costs.
b. California-American (Cal-Am) Water Company will cease to track costs in the memorandum account on July 1, 2012.
c. All authorized incurred costs included in the memorandum account ($21,724,907 in pre-construction costs in the memorandum account as of October 30, 2010, $2,577,751 of interest as of December 31, 2011, authorized cost of capital from January 1, 2012 to June 30, 2012, interim dam safety and environmental costs for drawdowns and any of the $49 million in construction costs incurred along with its associated cost of capital) shall be transferred to the regulatory/asset balancing account.
d. Cal-Am will recover the regulatory asset/balancing account over a 20-year period starting July 1, 2012. During the interim recovery period, from July 1, 2012 up until the first day of the first test year when the revenue requirement will be included in base rates, the recovery will be based on a levelized revenue requirement which will be estimated based on total projected costs as set forth in Appendix 2 of this decision. The estimate shall be based on the utility's authorized cost of capital. The book amortization expense of the regulatory asset/balancing account will be based on the total estimated levelized surcharge billed less uncollectible account expense, taxes and authorized cost of capital on the actual regulatory asset/balancing account balance.
e. Actual expenditures for the project costs will be included in the regulatory asset/balancing account as they are incurred. The actual expenditures will include permitting, compliance review and preliminary engineering costs, construction costs, interim dam and environmental safety measures, and post-construction mitigation measures.
f. The revenue requirement will include applicable costs for uncollectible amounts, franchise fees, ad valorem taxes and income taxes.
g. The revenue requirement will be collected through a surcharge authorized in this proceeding based on the projected average balance of the regulatory asset determined in this proceeding based on the estimate developed per Appendix 2 of this decision.
h. The actual balance of the regulatory asset/balancing account, less accumulated amortization and associated deferred taxes, will be authorized to earn a return based on the currently authorized cost of capital.
i. For tax purposes the cost of the project will be deducted as authorized by the Internal Revenue Service.
j. The tax-effected difference between book amortization and the ability to take the tax deduction for the costs of the project will offset the regulatory asset/ balancing account as a deferred tax for purposes of calculating the authorized cost of capital.
k. The deferred tax effect of the tax depreciation of $13,405,109 already taken through December 31, 2009 will remain a reduction to rate base of the Monterey District and will not offset the regulatory asset/balancing account.
l. Any additional carrying costs related to interim financing will be tracked in the balancing account at the authorized cost of capital.
m. The regulatory asset/balancing account will draw interest at the authorized cost of capital. The balancing account will be closed at the time the regulatory asset moves into base rates. The balance at that point will remain in the regulatory asset/balancing account and will continue to be collected over the remainder of the twenty year collection period using an updated levelized revenue requirement based on the ending net regulatory asset/balancing account balance, the current authorized cost of capital, the remaining years in the twenty year recovery period, projected deferred taxes, uncollectible account expenses and taxes. The levelized revenue requirement set in base rates may still need to be adjusted periodically for changes in authorized cost of capital or for other items that may be delayed into the account such as the tax benefits of the land donation.
n. Post-construction mitigation costs will be included in the regulatory asset/balancing account balance and surcharge until the revenue requirement on the regulatory asset is included in base rates, at which time the post-construction mitigation costs will also be estimated in base rates as an expense.
o. The revenue requirement on the regulatory asset will move into base rates at the time of the first General Rate Case after the final review of all project costs.
p. The tax benefits derived from the transfer of the land including Parcels 417-051-004-000, 417-051-005-000, 417-051-010-000, and 417-051-011-000 will serve to reduce the collections required by the regulatory asset if the benefit was not already factored into base rates.
3. California-American (Cal-Am) Water Company shall file a quarterly status report on the Project with the Division of Water and Audits, with copies to the service list of this proceeding, until the Project is completed and transferred to the Bureau of Land Management. In this report Cal-Am shall provide an account of the Project's progress and confirm that it is consistently following its own internal written guidelines for bidding processes. It shall also discuss the status of the Sleepy Hollow Steelhead Rearing Facility as well as provide a balance for the regulatory asset/balancing account.
4. Within 15 days of the issuance of this decision, California-American Water Company shall file by Tier 2 Advice Letter tariffs to establish the San Clemente Dam balancing account and regulatory asset account, and to close the San Clemente Dam Memorandum account.
5. Exhibit 24 contains confidential information, as described in California-American Water Company's July 7, 2010 motion. Pursuant to General Order 66-C, this exhibit shall remain sealed until January 1, 2018.
6. California-American Water Company's dam diversion testimony is in compliance with Rule 1.1 of the Commission's Rules of Practice and Procedure and Sections 2107 and 2108 of the Public Utilities Code.
7. Planning and Conservation League Foundation is eligible to seek compensation in this proceeding. This eligibility is unique to this proceeding and shall not be considered precedent setting in any other proceeding.
8. All outstanding motions in this proceeding are herein denied.
9. This proceeding is closed.
This order is effective today.
Dated June 21, 2012, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
CATHERINE J.K. SANDOVAL
MARK J. FERRON
Commissioners
I dissent.
/s/ MICHEL PETER FLORIO
Commissioner
APPENDIX 1
July 2011 Updated Carmel River Reroute and
San Clemente Dam Removal Project Estimate
(END OF APPENDIX 1)
APPENDIX 2
Balancing Account Amortization and
Customer Surcharge
(END OF APPENDIX 2)
APPENDIX 3
Service List
************** PARTIES ************** |
Diana Brooks |
Joyce Steingass |
Robert G. Maclean |
Alex J. Lorca |
Larry Hampson |
(END OF APPENDIX 3)
