II. Background

The Commission opened this proceeding to consider rules and guidelines for regulated water utilities to better utilize excess capacity. In D.00-07-018, we adopted a methodology for water utilities to allocate revenue from non-tariffed projects between ratepayers and shareholders. The methodology created a distinction between "active" and "passive" non-tariffed offerings by the utility. D.00-07-018 also adopted a list (in Attachment A to that decision) designating many potential non-tariffed offerings as either active or passive, and stating that any non-tariffed offerings by the utility not present on the list would be designated as active if the shareholders incurred incremental investment costs of $125,000 or more. For active projects, the water utility shareholders would receive 90% of the revenue, and for passive projects, 70%. Ratepayers would receive the remaining 10% and 30%, respectively.

The Commission required that the shareholders absorb all incremental costs of the non-tariffed offering, and left it to "future rate cases to consider the issue of whether or to what extent rates should reflect investments made and costs incurred for labor and capital jointly used for tariffed and non-tariffed products and services." D.00-07-018 at p. 16. The Commission also required an annual report for each utility engaging in non-tariffed endeavors. Id.

To enable review of proposed non-tariffed offerings by water utilities, the Commission required "all subject utilities to file an Advice Letter before providing new non-tariffed products and services." The Commission reasoned that to do otherwise could result in the utility becoming "encumbered with substantial long-term obligations without Commission review and approval" and that such obligations "could have serious impacts on ratepayers which . . . would not be considered until after-the-fact review in the net general rate case." Id. at 15.

The Commission specifically made a Conclusion of Law that: "[T]he public interest requires that water utilities have a means of obtaining Commission review and approval prior to entering into a new active non-tariffed endeavor." Id. at p. 18.

Notwithstanding the above-cited statements, Ordering Paragraph 2 exempted all active projects listed in Attachment A from the advice letter-filing requirement. The Commission did not provide any discussion or any statement of rationale to support this exemption, nor does the record of the proceeding show any evidence supporting such an exemption.