6. Operating Revenues

6.1 Environmental Claims

For its San Jose Hills service area, Suburban until recently derived much of its water - about 32,000 to 38,000 acre feet annually - from wells located in the Main San Gabriel Basin. However, contamination of the groundwater forced the decommissioning of all of its basin wells (the last of them during the hearing in this case), and Suburban now is required to purchase all of its San Jose Hills water from other purveyors, primarily the Metropolitan Water District (MWD).

Stephen B. Johnson, an engineer for the San Gabriel Basin Watermaster, testified that about 19 industrial companies believed to have contributed to the contamination last year signed the Baldwin Park Operable Unit Project Agreement, or BPOU Project Agreement,² to reimburse Suburban and other affected water companies for costs attributable to the contamination and cleanup. At time of hearing, Suburban had received more than $1 million in operations and maintenance reimbursements, and the industrial companies (called "cooperating respondents" or "CRs") had also contributed two new wells in a non-contaminated area that are expected to go into operation this year.

Johnson testified that the groundwater contamination is not stagnant, but rather is expanding and migrating. Moreover, the different contaminants discovered in the water, from volatile organic contaminants to perchlorate, require different methods of cleanup. According to the evidence, one cleanup facility has been built and is in operation and two more are under construction, with a total capital outlay of $100 million to be paid by the CRs.

Suburban accounts for all CR reimbursements of past costs as "below the line" since all costs related to CR environmental claims have been borne by shareholders and not reflected in rates. Two new wells paid for by the CRs are shown on Suburban's books as "contributions" that are not reflected in ratebase.

ORA recommends that all costs and reimbursements attributable to contamination be recorded in a balancing or memorandum account so that the Commission can more readily verify their accuracy. Suburban maintains that since all operation and maintenance costs related to CR environmental claims have been borne by shareholders, reimbursements should be reflected as below-the-line credits to shareholders consistent with matching principles of accounting. It argues that a balancing account is inappropriate because the Public Utilities Code limits such accounts to situations in which the Commission has authorized changes in rates that are to be passed through to customers. (Pub. Util. Code § 792.5.) Similarly, a memorandum account would imply that Suburban could recover any unreimbursed amounts from ratepayers. As Suburban's chief financial officer testified at hearing:

"If we were to enter these kinds of costs into a balancing account or a memorandum account, the implication would be that we are seeking relief from the ratepayer for these costs. It is not our intent, never has been. We have negotiated in good faith with the CRs that everyone must remain whole. So once again, none of these costs are reflected in any sort of balancing or memorandum account. They are the responsibility of the CRs." (Transcript, p. 251.)

ORA acknowledged at hearing that an audit of Suburban's books show that environmental expenses and CR reimbursements did not disclose inaccuracies. In view of this, we are reluctant to impose an accounting system on Suburban that would give the appearance of shifting to ratepayers the recovery of costs that now are the contractual responsibility of the CRs. However, recognizing the difficulty of tracking these diverse amounts in multiple accounts, our order today requires Suburban in the future, upon request of ORA, to prepare a pro forma exhibit showing all CR reimbursements and the contamination costs for which reimbursement has been made.

6.2 Water Service Revenues

The differences between Suburban's and ORA's water service revenues at recommended rates are a function of the issues discussed below. Suburban and ORA reached agreement on the figures for water use per customer and for customer growth.