16. Comments on Proposed Decision

The principal hearing officer's proposed decision was filed with the Commission and served on all parties in accordance with Section 311(d) of the Public Utilities Code and Rule 77.1 of the Rules of Practice and Procedure. Comments were filed on May 13, 2003, and reply comments were filed on May 19, 2003.

ORA objects to language in Ordering Paragraph 2 in the Proposed Decision, dealing with step rates for the years 2004 and 2005. ORA argues that the language proposed would permit the water company to automatically recover the requested rates until such time as the Water Division determines that the rates are accurate, and would place the burden on Water Division staff to disprove the justification for the water company's requested increase. ORA states that it has long been Commission practice to require the utility to prepare a pro forma earnings test exhibit that must be reviewed and approved by the Water Division before allowing the utility to recover the requested rate increase.

ORA notes that this change in practice was not raised by any party in this proceeding. Such a change, ORA argues, should only be made after all affected parties have been given notice and an opportunity to be heard, pursuant to Pub. Util. Code § 1708.

While we question whether a change in the Commission's internal procedure for processing step rate requests requires § 1708 perusal, we agree with ORA that the record in this case is silent as to the manner in which step rates are processed. There may be legitimate concerns that should be addressed before we make such a change. Accordingly, we have changed Ordering Paragraph 2 to more traditional language, providing that the rate changes "shall go into effect upon Water Division's determination of compliance, not earlier than January 1 of the year for which the increase is authorized, or 30 days after filing, whichever is later."

ORA also raises a factual objection related to the testimony of ORA witness Ishwar Garg, and we have corrected that reference in the decision.

Suburban notes a number of corrections in dollar amounts recorded in Appendix A and reflected in the text of the decision, and we have made those corrections where appropriate. We also have corrected the number of Maple customers (155 instead of 500) and deleted a reference to a Commission acquisition decision (D.99-10-064) that does not apply retroactively to the 1997 acquisition of Maple. Suburban also urges a correction to Appendix E, Attrition Calculations for 2005. The section calculating operational attrition uses the adopted rates of return for 2003 and 2004. Rather, based on current Commission practice, this calculation should use the return at present rates for 2003 and 2004. We agree.

In order to be clear in the decision about the method of calculation, Suburban suggests that text be added similar to that approved by the Commission in the recent Valencia Water Company General Rate Case, D.03-05-030. We agree, and we add the following text to this decision:

Attrition is a change in the earning (rate of return on rate base) of a utility from the first test year to the second test year when the utility's existing (present) tariff rates stay the same. The attrition consists of two components: operational and financial. They are calculated as follows:

Operational attrition. Calculate the rate of return on rate base (ROR) for the first test year using the present (existing) tariff rates. Calculate the ROR for the second test year using the same present tariff rates as used for the first test year. Compute the difference by subtracting the second test year ROR from the first test year ROR. Multiply the difference by the net-to-gross multiplier and the second test year rate base to arrive at the operational attrition allowance.

Financial Attrition. The financial attrition is calculated by subtracting the second test year's total weighted cost of debt and equity from the attrition year's total weighted cost of debt and equity. Multiply the difference by the net-to-gross multiplier and the second test year rate base to arrive at the financial attrition allowance.

The attrition allowance is computed by adding the operational and financial attrition amounts. The attrition allowance could be positive or negative.