Discussion

In our examination of San Gabriel's proposal, we find that it meets the policy directives contained in both Pub. Util. Code § 739.8 and the ordering paragraphs of D.02-10-058. It extends low-income discounts to ratepayers only, instead of to all residents. It promotes water conservation by offering a discount to the service charge only, and leaves the quantity rate unchanged. And it offers an innovative ratemaking approach that enables the Commission to evaluate the program's effectiveness without increasing rate risk for the customers and the utility.

§ 739.8 requires the Commission to consider and implement low-income programs for only ratepayers. § 739.8 states, "(b) The commission shall consider and may implement programs to provide rate relief for low-income ratepayers, and (c) The commission shall consider and may implement programs to assist low-income ratepayers in order to provide appropriate incentives and capabilities to achieve water conservation goals."

In the spirit of § 739.8, we ordered the parties in this proceeding to propose programs to deliver low-income discounts to indirect customers such as residents of multi-family dwellings. While some innovative programs were proposed such as (1) requiring the electric utilities to include the water discount on the electric bill, and (2) issuing discount based coupons to tenants to pay rent, each proposal had deficiencies rendering them unworkable. In our investigation, data provided by Southern California Edison Company (Edison) showed that up to one third of San Gabriel's low-income residents could be left out from receiving water discounts as they were not direct customers of San Gabriel.

While we were unable to determine an equitable way to provide every low-income San Gabriel resident a discount for water, we are under no obligation to do so. Since two thirds of San Gabriel's customers are eligible for the discount, there is no just or compelling reason to deny these low-income customers a discount. While we acknowledge that service charges will increase for master meters serving multi-family dwellings, the record in this proceeding establishes no quantifiable correlation between monthly rents and a multi-family dwelling's water bill. As such, the argument that low-income residents of multi-family dwellings will somehow "subsidize" other single-family low-income customers is not valid. Therefore, we accept San Gabriel's CARW program as proposed. We find CARW fair and equitable and in full compliance with § 739.8 requirements.

San Gabriel's proposal calls for service charge discount of 50%, while quantity rates are to remain unchanged. By lowering the readiness-to-serve charge only, there is no adverse incentive to use water unwisely. Conversely, applying a discount to the total bill and/or to the quantity rate, would not promote conservation. Hence, we find San Gabriel's proposal to discount the service charge only reasonable and consistent with § 739.8.

San Gabriel proposes to establish a companion balancing account to track the costs of CARW until sufficient experience with the program is attained such that costs associated with CARW can be reliably forecast in a general rate case proceeding. Specifically, San Gabriel proposes that the following entries be made, on a monthly basis, to such a balancing account; (1) the recorded reduction in billed service charge revenue (debit), (2) program costs for incremental activities associated with the program (debit), (3) one-twelfth of the annual Commission adopted revenue reduction due to the reduction in service charges (debit, For 2003, San Gabriel calculates this amount to be $2,065,016), (4) franchise fee and uncollectible expenses (credit), and (5) monthly interest based on the commercial paper rate as published in the Federal Reserve Statistical Release, G.13, or its successor publication (debit or credit). San Gabriel recommends that such balancing account terminate upon the issuance of a final general rate case decision for the Los Angeles district.

We find San Gabriel's proposed balancing account to be reasonable as it appears to accurately reflect the cost / savings associated with the CARW program. But instead of a balancing account, we will authorize San Gabriel to establish a memorandum account using the same entries, so that we preserve our right to audit this account for reasonableness at the next general rate case proceeding. At that time, we will also determine the appropriate amortization schedule of this account.

In summary, we find that San Gabriel's CARW proposal meets the requirements set forth in § 739.8, as well as the policy directives contained in the ordering paragraphs of D.02-10-058. It extends low-income discounts to ratepayers, it promotes water conservation, and it offers a revenue neutral balancing account mechanism.

San Gabriel filed this application two years earlier. Since that time, the Commission has issued one decision and has accepted one application from San Gabriel that affects this proceeding. In September 2004, San Gabriel filed a general rate case application (A.04-09-005) for its Los Angeles district for 2005, 2006, and 2007. Evidentiary hearings have concluded and a proposed decision is expected shortly. Because the current proceeding had not been resolved at the time of filing, San Gabriel did not propose a low-income rate in A.04-09-005. In July 2004, the Commission issued D.04-07-034 in A.02-11-044-Fontana district general rate case proceeding for years 2004, 2005 and 2006. D.04-07-034 Ordering Paragraph No. 18 states "San Gabriel shall, when the Commission adopts such a program, implement a Low Income Rate Program in Fontana Division identical to that to be authorized by the Commission in Application 03-04-025, for its Los Angeles Division."

In light of this, the Commission will require San Gabriel to file an advice letter to implement a CARW program for both its Los Angeles and Fontana districts within 60 days of this order. We will require the Water Division to review the advice letters for compliance with this order and reasonableness, before bringing them to the Commission for approval.