7. Operations and Maintenance Expenses
7.1 Payroll
Suburban bases its operations and maintenance payroll estimate on all existing positions as well as four proposed new facility maintenance positions. ORA recommends eliminating the four facility maintenance positions as well as the existing Mechanic II position and Engineering Manager position for the Whittier/La Mirada service area.
ORA testified that it was not satisfied with Suburban's justification for these positions. It acknowledged, however, that the Mechanic II and Engineering Manager positions, while vacant for a time in 2002, had been authorized in Suburban's prior general rate case. The Mechanic II is responsible for inspecting every pump station each day and documenting each day's flows and chlorine residuals. The Engineering Manager supervises engineering, drafting and surveying functions for the utility's water facilities. Suburban last year filled both of these positions.
Suburban presented evidence in its Results of Operations Report showing that the four facility maintenance positions (two for San Jose Hills and two for Whittier/La Mirada) are necessary for routine painting and repair of the company's well and reservoir sites. Suburban acknowledged an error detected by ORA in double counting salary escalation costs, and the error has been corrected in the parties' Joint Comparison Exhibit filed on January 10, 2003.
Suburban has made a reasonable showing that the requested positions are necessary, and that they contribute to quality of service. The fact that the utility operated in the past with two of the positions unfilled is insufficient to disallow them. We adopt Suburban's estimate for this payroll category.
7.2 Water Loss
Suburban estimates a 7.34% annual water loss based on the most recent losses in the year 2001. ORA notes that water loss has ranged from 5.46% in the year 2000 to 7.34% in 2001 and recommends a 6.6% factor based on the average over six years. We accept ORA's estimate as the more reasonable measure.
7.3 Source of Supply
ORA calculated source of supply expenses based on Suburban's estimate for pumped water and purchased water, multiplied by ratios of the estimated quantities of each source of water. Suburban's workpapers reflect the actual quantities available from each source of water, and they offset reduced reimbursement for contamination based on production of two new wells. ORA acknowledged at hearing that its calculation of pumped water costs was understated by $700,000. Suburban's estimates are supported by reliable data, and we adopt them.
7.4 Water Treatment Expenses
Suburban and ORA are relatively close in estimating water treatment expenses. Both calculated amortization of preliminary design cost estimates based on past Commission authorization to amortize the cost over 12 years ending in 2007. ORA, however, included no escalation in its calculations. Suburban estimated its costs for such maintenance based on a six-year average. Similarly, Suburban based its estimate on quantity of total water supply and water treatment costs on a six-year average. We will adopt Suburban's estimates as the more reliable.
7.5 Transmission and Distribution Expenses
ORA based its transmission and distribution expenses estimate on a five-year average. Suburban used a six-year average, resulting in slightly higher estimates. Suburban's estimates are more reliable and are adopted.
7.6 Customer Account Expenses
Suburban proposes to reduce the interest rate it pays on deposits from 7% to the average monthly 90-day commercial paper rate. ORA notes that interest is paid only on deposits that are held for one year or more. Since deposits are taken to establish credit where credit cannot otherwise be established, ORA argues that the 7% rate encourages Suburban to monitor customers' credit standing and return deposits promptly. We adopt ORA's position on this issue.
7.7 Uncollectibles
The differences between Suburban's and ORA's estimates are due to their different estimates of operating revenues, and these are reconciled in the adopted revenue requirements.
