35. Balancing and Memorandum Accounts
SGV has been authorized to maintain a number of balancing and memorandum accounts. The accounts are as follows:
· Water Quality Litigation Memorandum Account-This account contains balances related to water quality litigation costs. SGV requests authority to amortize the balance in the account as of the effective date of this decision, over a one-year period through a surcharge.
· Water Quality Memorandum Account-SGV has received grants totaling $190,280 from the United States Environmental Protection Agency for exchanging resin at the Plant F17 well head treatment facility. SGV requests authority to amortize the balance in the account as of the effective date of this decision. SGV plans to file an advice letter to amortize the balance, including interest, over a one-year period. SGV also requests authority to continue to record in its Water Quality Memorandum Account future costs incurred, proceeds received from polluters and grants received from governmental agencies related to water quality, including but not limited to capital costs, and operations and maintenance costs of needed wellhead treatment facilities that cannot reasonably be forecasted for the test years and are not included in the GRC.
· Facilities Fees Memorandum Account-This memorandum account tracks facilities fees collected by SGV. On November 15 of 2007 and 2008, SGV made advice letter filings to update the Fontana Division's rate base to include investment during the preceding calendar year in the Sandhill plant upgrade less facilities fees recorded in the memorandum account. SGV asks for authority to continue to file advice letters to adjust rates for facilities fees revenues.
· Public Utilities Code Section 790 Memorandum Account-This account contains the proceeds from involuntary conversions and sales of utility property to private property owners consistent with Section 790, the Commission's gain on sale requirements as set forth in D.06-05-041 and D.07-09-021, and D.07-04-046 in the last Fontana GRC.
· Operation and Maintenance Costs for Plant F10 Treatment Facility-SGV has accounted for all costs incurred and recoveries received from third parties, specifically its O&M costs for operating of the wellhead treatment facility and the recovery of those costs from the county of San Bernardino through December 2007 pursuant to an agreement resolving SGV's claims related to groundwater contamination by volatile organic compounds originating at a county-owned facility. Those costs continue to be incurred and recovered from the county.
35.1. Discussion
SGV's request to amortize the balance in the Water Quality Litigation Memorandum Account as of the effective date of this decision, over a one-year period through a surcharge is unopposed and granted.
SGV's request to file an advice letter to amortize the balance in the Water Quality Memorandum Account as of the effective date of this decision, including interest, is unopposed and granted. SGV is also authorized to continue to record in its Water Quality Memorandum Account future costs incurred, proceeds received from polluters and grants received from governmental agencies related to water quality, including but not limited to capital costs, and operations and maintenance costs of needed wellhead treatment facilities that cannot reasonably be forecasted for the test years and are not included in the GRC.
SGV's request for authority to continue to file advice letters to adjust rates for facilities fees revenues is unopposed and granted.
The proposed decision of ALJ Jeffrey P. O'Donnell in this matter was mailed to the parties in accordance with § 311 of the Public Utilities Code and comments are allowed pursuant to Rule 14.3 of the Commission's Rules of Practice and Procedure. Opening comments were filed on ___________, and reply comments were filed on ___________.
John A. Bohn is the Assigned Commissioner and Jeffrey P. O'Donnell is the assigned ALJ in this proceeding.
1. SGV and DRA are the only parties to the settlement.
2. SGV provided an application and exhibits that explained its request for a rate increase in detail.
3. DRA provided its analysis of the application indicating that it agreed with some of SGV's estimates and disagreed with others.
4. The overall settlement result lies between the initial positions of SGV and DRA and the settlement resolves some issues raised by the other parties.
5. The settlement with the alternative settlement terms does not violate any statute or Commission decision or rule.
6. SGV represents the interests of its shareholders.
7. DRA represents the interests of SGV's ratepayers.
8. The settlement with the alternative settlement terms results in rates that are sufficient to provide adequate reliable service to customers at reasonable rates while providing SGV with the opportunity to earn a reasonable return.
9. The settlement with the alternative settlement terms provides the Commission with sufficient information to carry out its future regulatory obligations with respect to the parties and their interests.
10. The parties agree that there will be no increase in the number of residential and commercial customers during the forecast period.
11. The assumption in the settlement of no growth in the number of residential and commercial customers is reasonable.
12. As to public authority customers, the record does not indicate the public sector is immune to the financial situation affecting the public at large.
13. It is common knowledge that the current economic downturn is hurting the public.
14. It is reasonable to assume the current economic downturn will result in lower tax revenues for local government.
15. It is reasonable to assume the number of public authority customers will not increase during the forecast period.
16. The effect of the economic slowdown is better reflected by using the three-year average commercial sales per customer amount adopted in the settlement than a five-year average.
17. CEMTEX supplies sand, gravel and cement and CSI produces steel products.
18. With the economic slowdown and reduction in construction, it is reasonable to expect that CEMTEX and CSI will have less demand for their products resulting in lower water use.
Miscellaneous Expense-Litigation Expenses
Not Related to Water Quality
19. The Slemmer suit was resolved by a settlement.
20. The record does not indicate that suits similar to the Slemmer suit are likely to recur on a regular basis.
21. Regulatory commission costs are a forecast of costs during the forecast period, not an amortization of recorded costs.
Ratemaking Treatment of Investments in Shares
of Fontana Union Water Company
22. On February 14, 2002, Dr. Thomas Slemmer and several other persons filed the Slemmer suit in San Bernardino Superior Court against SGV and other defendants claiming treble damages in the range of tens of millions of dollars.
23. The Slemmer suit alleged the defendants violated federal and state anti-trust laws by settling a lawsuit with West Valley Water District involving access to Lytle Creek surface water that had the effect of prohibiting the plaintiffs from selling the water rights represented by their shares in FUWC to third parties.
24. Another issue in the Slemmer suit was whether the plaintiffs received a reasonable price for 358.6 shares previously acquired by SGV.
25. The Slemmer settlement was approved by the Court on July 24, 2006.
26. As part of the Slemmer settlement, the suit was dropped, SGV paid $4,200,000 to the plaintiffs and SGV received 179.2 shares of FUWC stock.
27. The purpose of the $4.2 million Slemmer settlement amount was to settle the Slemmer suit.
28. The Slemmer settlement was not an arms length purchase of FUWC shares.
29. The Slemmer settlement costs are not necessarily indicative of the value of the 179.2 shares acquired or the value of removal of the plaintiffs claim regarding the 358.6 shares previously acquired.
30. Kemper accepted the obligation to defend SGV and FUWC in the Slemmer suit.
31. Due to the complexity and risk exposure of the litigation, all of the parties, including SGV, retained outside counsel in addition to the attorneys provided by Kemper.
32. SGV incurred $938,934 in litigation costs for the Slemmer suit.
33. Kemper faced insolvency and decided in mid-2006 to claim that it was not obligated to defend SGV and FUWC or be responsible for any judgments against them.
34. Kemper was part of the Slemmer settlement and paid $6 million into it.
35. SGV would have incurred additional costs if the Slemmer suit had gone to hearing and more costs if the verdict in the Slemmer suit was appealed.
36. If SGV lost the Slemmer suit, it may have had to pay damages, and additional costs due to Kemper's insolvency and Kemper's position that it would or could no longer defray the litigation costs.
37. SGV would have incurred significant additional costs absent the Slemmer settlement.
38. Because the Slemmer suit was not foreseen in the previous GRC, estimated costs were not included in rates and the costs would have been paid for by SGV's shareholders, not ratepayers.
39. SGV's shareholders benefited significantly from the Slemmer settlement.
40. The record does not indicate that SGV intended to buy the additional water rights it received in the Slemmer settlement prior to the Slemmer settlement.
41. Prior to the Slemmer settlement, SGV and some other owners of FUWC were using the water rights of FUWC to the extent they needed to do so.
42. Since other owners of FUWC were seeking to sell their shares, which could have allowed other entities to use portions of the FUWC water rights, it is possible that SGV could have reduced access to FUWC water rights in the future although the record does not indicate that this possibility was very likely to occur.
43. SGV's acquisition of additional FUWC shares as a result of the Slemmer settlement eliminates the possibility that SGV could have reduced access to FUWC water rights in the future.
44. The additional 179.2 shares of FUWC stock SGV acquired as a result of the Slemmer settlement have some value to ratepayers.
45. The record shows that the FUWC water rights have a value of $3,540-$5,534 per acre foot.
46. SGV represents that the Slemmer suit was without merit.
47. Since the record does not indicate that SGV was at any significant risk of having to pay more for the 358.6 FUWC shares previously acquired, there is little if any value to ratepayers of the Slemmer settlement regarding these shares.
48. For SGV to lose the Slemmer suit, it would have been found to have acted improperly regarding the purchase of the 358.6 shares of FUWC previously acquired and there would be no reason for ratepayers to pay for the results of SGV's wrongdoing.
49. Facilities fees will offset ratebase additions.
50. The facilities fees collected for the 11-month period November 2007 through September 2008 were $3,083,900, or $280,355 per month.
51. The number of customers adopted herein is based on the number of customers as of December 31, 2007, with the assumption of no customer growth.
52. It is not reasonable to assume the amount of facilities fees collected through June 30, 2009 will continue at the same rate as for the 11 months ended September 2008.
53. As the economic downturn has continued, the amount of facilities fees collected can be expected to decline substantially.
54. It is reasonable to assume that an additional $1 million in facilities fees will be collected for the nine-month period October 1, 2008 through June 30, 2009.
Plans for Developing Recycled Water Service
55. The settlement provides that tariffs for recycled water service and the use of facilities fees for recycled water projects will be addressed by a separate application or advice letter.
56. Since any recycled water project will involve the setting of rates and development of tariffs where none currently exist, the issues involved may be detailed and complex.
57. An application is superior to an advice letter for addressing a recycled water service project when it comes to fruition because it will allow parties other than SGV to more fully participate in the resolution of the relevant issues.
58. There are no groundwater pumping restrictions that would prohibit SGV from using Wells F13A and F13B.
59. The Plant F13 reservoirs will receive additional water due to the Sandhill upgrade, which will cause the large F13 reservoir to be full most of the time.
60. The proposed booster pumps at Plant F13 will pump water from the F13 reservoirs to serve customers at higher elevations.
61. The settlement provides for two new reservoirs at Plant F16 with a combined capacity of 1.5 million gallons, which is the size COF recommends.
62. Since the existing booster pumps at Plant F16 are sized for the existing reservoir capacity of 0.5 million gallons, additional booster pump capacity is needed.
63. The record demonstrates that the two Plant F17 wells have high nitrate concentrations that have, on occasion, exceeded the maximum allowable contaminant level.
64. The water from the Plant F17 wells is pumped to a common perchlorate treatment facility and reservoir.
65. The Plant F17 wells are at risk of exceeding the maximum allowable nitrate level, which would cause them to be shut down absent nitrate treatment facilities.
66. To the extent the output from the Plant F17 wells blends in the reservoir, it is insufficient to eliminate the need for treatment, especially if the contamination of the wells increases, because blending only works if one of the sources is not polluted.
67. Both Plant F17 wells are at risk of exceeding the maximum allowable nitrate level.
68. The additional well at Plant F21 was deferred to the next GRC, not eliminated entirely.
69. If the new reservoir and booster pump station at Plant F21 are sized for only the one well, another reservoir or expansion of the planned reservoir will be necessary along with more booster pump capacity when the additional well is drilled.
70. Although the need for the now deferred Plant F21 well is not addressed in this proceeding, it is reasonable to conclude that one will eventually be needed.
71. Since storage and pumping capacity have service lives far beyond this GRC cycle, their design must consider the long term rather than just this GRC cycle.
72. It is reasonable to construct the additional Plant F21 storage and pumping capacity as provided for in the settlement.
73. Since the perchlorate level at Plant F23 is increasing, treatment will become necessary.
74. It makes sense to install treatment facilities at Plant F23 before they are required rather than waiting until the maximum allowable level is exceeded and the well has to be shut down.
75. The availability of funds from the DOD is a factor in support of Plant F23 construction.
76. The Plant F23 reservoir is necessary to allow sufficient contact time for disinfection of the water before it flows into the distribution system.
77. The settlement excluded SGV's proposed construction of a water treatment plant at Plant F25.
78. Since the settlement amount for mains includes $1,000,000 for a main to convey contaminated water to Plant F25 for treatment, that amount should be excluded from the expenditures for mains in 2011.
79. Since the settlement amount for mains for 2011 does not contain an extra $2,000,000 for "various" mains, FUSD's concerns regarding this matter have been addressed.
80. Replacement of mains that have exceeded their useful lives or are undersized is reasonable.
81. It is reasonable to take advantage of opportunities presented by local government reconstructing roads, etc. to reduce costs of installing mains.
82. During the 1970's, SGV began using polyethylene pipe in constructing services.
83. By 1995, SGV began experiencing problems with polyethylene services because the pipe becomes brittle and prone to rupture over time.
84. SGV no longer uses polyethylene pipe for services and has begun replacing it when a leak is detected.
85. When a leak in a service is found on a particular street where other services were constructed at the same time using polyethylene pipe, SGV replaces all of the services on the street.
86. SGV's replacement strategy for polyethylene services is reasonable given the problems with polyethylene pipe.
87. SGV's replacement strategy for polyethylene services avoids multiple repairs of the same services and future repairs of other services with the same vintage of polyethylene pipe, which avoids frequent excavation and patching of the street in the same area and resulting customer complaints.
88. SGV's proposed costs for polyethylene services for 2009-2011 are below the costs for 2007, slightly above the costs for 2006 and far below the costs for 2008.
Reasonableness Review-Burden of Proof
89. In evaluating the reasonableness of a project, the applicant must demonstrate that its decisions were what a reasonable person with the necessary education and expertise would have made at the time based on the information that could and should have been available.
90. SGV does not have written guidelines for its use of competitive bidding.
91. Having competitive bidding guidelines will help ensure SGV uses a competitive bidding process when it is appropriate to do so.
Reasonableness Review-Job No. 4761-Plant
F16-Install Electrical Panel
92. The increase in the size of the Plant F16 electrical panel was due to the installation of two new booster pumps at Plant F16.
93. The fact that the Plant F16 electrical panel has been used to operate the booster pumps since 2003, including frequent running of all booster pumps, shows the full capacity of the panel has been frequently used.
Reasonableness Review-Job No. 4822-Plant F53-Acquisition
of Land Parcel No. 215
94. As part of the settlement, SGV withdrew its proposal to make proposed improvements at Plant F53.
95. Land Parcel No. 215 will not be used in this GRC cycle.
96. The need for the improvements at Plant F53 is based on the availability of Sandhill and growth in the demand for water, which SGV forecasts Sandhill will help supply.
97. Growth in the demand for water will not occur during this GRC cycle, and may not occur in the next GRC cycle.
98. Land Parcel No. 215 is adjacent to Plant F53 and will become useful when Plant F53 is expanded sometime in the future.
99. In order for land to qualify as PHFU, the utility must have definite plans for its use, including a definite date for such use.
100. While SGV asserts it has a definite plan to use Land Parcel No. 215, the date is uncertain due to the uncertainty as to when customer growth will resume to a level that would require the expansion of Plant F53.
Reasonableness Review-Job No. 4870-Plant F7-Drill and Equip Well F7B, Construct Reservoir F7A, Booster Station and Site Improvements
101. It is not reasonable to believe that, when SGV purchased the land for Job No. 4870, it did not notice that it had a substantial slope that would cause drainage issues.
102. The fact that resolution of the drainage issue was not included in the original estimate for Job No. 4870 tends to indicate that SGV was not aware of the issue or chose to ignore it, either of which indicates imprudent planning.
103. SGV could and should have been aware of the drainage issue with Job No. 4870, and should have considered alternative locations and alternative ways to address the drainage issue.
104. The record does not indicate that SGV was aware of the drainage issue with Job No. 4870, or considered alternative locations and alternative ways to address the drainage issue.
Reasonableness Review-Job No. 4895-Plant F51 Acquisition of
Land Parcel No. 221
105. Land Parcel No. 221 will not be used in this GRC cycle.
106. The project for Land Parcel No. 221, Plant F51, was proposed in the last two GRCs.
107. SGV delayed the Plant F51 project because of the CEQA process.
108. Given the Plant F51 project's history, it is not at all certain that it will be authorized or built in the next GRC cycle.
Reasonableness Review-Job No. 4901-Linden Avenue
North of Casmalia Street Install 42-Inch Pipeline
109. On some occasions when water was available from both Sandhill and the Lytle Creek well fields, one or both sources had to be cut back to avoid exceeding the capacity of the existing 30-inch pipeline for transporting water from wells in the Lytle Creek Basin and Sandhill to Plant F13.
110. On some occasions, flow rates in the existing 30-inch pipeline for transporting water from wells in the Lytle Creek Basin and Sandhill to Plant F13 had to be reduced to achieve sufficient disinfection contact time for Lytle Creek water treated at Sandhill.
Reasonableness Review-Job No. 4982-Cherry Ave. South
of Foothill Blvd.-Install 24-Inch and 16-Inch Pipelines
111. The age of the existing facilities associated with Job No. 4982 indicates that they were nearing the end of their useful lives of about 50 years and would be more susceptible to damage due to the reconstruction of the road over the pipelines by San Bernardino County.
112. The fact that San Bernardino County planned to reconstruct Cherry Ave. at that time provided the opportunity for cost savings for Job No. 4982.
113. The existing pipeline associated with Job No. 4982 did not have sufficient capacity to transport the full production from Plant F7.
114. The additional capacity of the Job No. 4982 facilities allows SGV to transport the full capacity of Plant F7, as well as water from sources other than Plant F7 when Plant F7 is not available.
Reasonableness Review-Job No. 5025-Sierra Avenue North of Baseline Avenue - Install 24-Inch Pipeline, Services and Fire Hydrant
115. Use of the 24-inch pipe for Job No. 5025 results in velocities within the desired range resulting in lower pumping costs.
Reasonableness Review-Job No. 5089-Baseline Avenue East of Cypress Avenue - Install 24-Inch Pipeline, Services and Fire Hydrants
116. Use of the 24-inch pipe for Job No. 5089 results in velocities within the desired range resulting in lower pumping costs.
Reasonableness Review-Job No. 5111 - Walnut Avenue West of Sierra Avenue - Install 24-Inch Pipeline
117. The City of Fontana's decision to pave and reconstruct curbs and gutters on Walnut Avenue, the Job No. 5111 location, was not anticipated in the Master Plan.
118. The Job No. 5111 project was not included in the Master Plan.
119. SGV provided no documentation addressing the need for the Job No. 5111 project.
120. Coordination with the local government that will be doing street work in the same area may reduce costs, but is not sufficient justification for the Job No. 5111 project.
121. General claims that the Job No. 5111 project will enhance reliability without a convincing demonstration that it will do so is not sufficient to meet the burden of proof.
122. SGV provided no demonstration of how the Job No. 5111 project will increase reliability or whether an increase in reliability is needed.
Reasonableness Review-Job No. 5199-Plant F13-Recoat Interior and Exterior of Reservoir F13(L)
123. Since the installation of Reservoir F13(L) baffling resulted in restoration of the use of more than 2.5 million gallons of storage, it was needed.
124. SGV did not put the Job No. 5199 project out for bid.
125. Job No. 5199 work was performed by a company that was familiar with the tank's construction and was able to perform the work at the time it was needed.
126. A project included in the application is the recoating of the F20 reservoir, which is the same size as the F13(L) reservoir.
127. The estimated cost to recoat the F20 reservoir's exterior, with minimal surface preparation, is $100,000.
128. The recoating of the F20 reservoir was intended as a temporary measure until another reservoir could be built allowing the F20 reservoir to be taken out of service for a more thorough recoating.
129. The recorded cost of recoating the exterior of the F13(L) reservoir is $125,000, exclusive of removal of the original coating.
130. Since the recoating of the F13(L) reservoir is not intended as a temporary measure, the cost of recoating the F13(L) reservoir compares favorably with the cost of recoating the F20 reservoir, which DRA did not oppose.
131. The Job No. 5199 work was needed, was performed by a qualified contractor and the costs were reasonable.
Reasonableness Review-Job No. 5205 and Job No. 5316-Systemwide-Install Services, Plastic Service Replacement 2007 and 2008
132. SGV's replacement strategy for plastic services is reasonable due to the problems with polyethylene pipe.
133. SGV's replacement strategy for plastic services avoids multiple repairs of the same services and future repairs of other services with the same vintage of polyethylene pipe, avoids frequent excavation and patching of the street in the same area and resulting customer complaints, and reduces water leaks.
134. Waiting longer to replace plastic services known to cause problems means that SGV would be called upon to make more unplanned repairs.
Reasonableness Review Headquarters Office Complex
135. SGV retained Earl as the general contractor to construct the Office Complex without soliciting competitive bids.
136. A comparison of the general manager costs for the Office Complex and a building constructed by the same contractor for the City of Fontana demonstrates the tasks performed for each of the two projects were different and that costs for comparable tasks were comparable.
137. The construction costs for the Office Complex, other than for the general contractor, resulted from a competitive biding process where the lowest reasonable bids were selected.
Building A-Reasonable Costs and GO Allocation
138. Since the Office Complex should last 40 years or more, it is reasonable to allow space for a 25% increase in employees by buildout.
139. The number of current Fontana Division employees to be located in Building A is 35.
140. Building A should be designed to accommodate 44 employees.
141. Building A is built to accommodate about 64 employees, which is an 83% increase over the current number of Fontana Division employees.
142. Building A was not designed with the intent of relocating GO employees.
143. The reasonableness of the size of Building A should be assessed against the needs of the Fontana Division.
144. Building A and Building B have different functions.
145. The record does not indicate that growth in the number of employees in Building B would overflow to Building A.
146. SGV should have designed Building A to accommodate the existing 35 employees plus an additional 25% (nine employees) for a total of 44 employees according to its own employee growth projections.
147. Since Building A was actually built to accommodate 64 employees, it was built too large and the decision to do so was unreasonable.
148. Building A, sized to accommodate 44 employees, should be included in ratebase for the Fontana Division, with all costs attributable to the space utilized by nine GO employees allocated to the GO.
149. While the maximum space allowances specified in the State Administrative Manual do not govern what is allowable for a water company, they demonstrate that SGV's space allocations are at least ample.
150. Since Building A should have been built to accommodate 44 employees and SGV allocated ample space to the various functions in the actual Building A design, the space allocated for common facilities (lobby, restrooms, meeting rooms, etc.) should be reduced in proportion to the significantly lower employee count.
151. If Building A had been built to accommodate 44 employees, it would have space to temporarily accommodate nine GO employees until the additional space is needed for the Fontana Division, and the additional 16 GO employees would have to be located elsewhere.
152. Building A should have been 68.8 % (44/64) of the size it currently is, while the building site would not have been appreciably different.
153. The cost of Building A, excluding site related costs, should be reduced to 68.8% of the costs or $ $6,837,873, a reduction of $3,100,896.
154. The reasonable cost for Building A, including site-related costs is $13,046,468 less $3,100,896 or $9,945,572.
155. The record does not indicate the nine GO employees will use the facilities other than office space, such as rest rooms, conference rooms, parking, etc. any differently than Fontana Division employees.
Reasonable Costs for the Remaining 16 GO Employees
156. Since the remaining 16 GO employees do not need to be located in the Fontana Division, are not currently located there, and will move to Building A only because it will have sufficient space to accommodate them, they could have been relocated elsewhere.
157. SGV has not indicated that it has plans to construct a new GO office building in the next few years.
158. Since it would not be reasonable to expand Building A just to temporarily accommodate GO employees, it is reasonable to assume that space would have to be rented for the 16 GO employees.
159. Since SGV has chosen to relocate the GO employees to Building A, a reasonable rent should be allowed for the space the 16 GO employees will occupy.
160. The record does not indicate what rental office space would cost and there is no basis for assuming the rental cost for the 16 GO employees would be as much as the cost of including the excess space in Building A in ratebase.
161. If SGV had gone into the rental market for office space, it is reasonable to assume that space would have been rented in an older building, and the rent would have been market-based, but the record does not include such information.
162. The revenue requirement for an equivalent amount of space in an older building can be used as a proxy for rental costs for the remaining 16 GO employees in this GRC cycle.
163. The record does not indicate the cost of an equivalent amount of space for the remaining 16 GO employees in an older building.
164. Since SGV estimated the cost of the Office Complex as $6 million in 2005, it is reasonable to conclude that an equivalent facility could have been built in 2005 or before for $6 million, or one-third of the $18 million actual cost of the Office Complex.
165. The cost of a facility, built in 2005 or before, equivalent to Building A and designed to accommodate 44 employees would be about one-third of the reasonable costs for Building A or $3,315,191 ($9,945,572/3).
166. Since the Building A reasonable cost is for 44 employees, the cost attributable to the 16 GO employees would be $1,205,524 ($3,315,191 x 16/44).
167. The revenue requirement, to be used as a proxy for the rent, should include a return on the cost of the building in the amount of $126,580 ($1,205,524 x 10.5%), and depreciation in the amount of $30,138 ($1,205,524 x 2.5%), assuming a 40-year life.
168. The total for the rent proxy is $156,718 which amounts to $816 per employee per month.
169. Since the cost of the land on which the Office Complex sits is not reduced due to the Building A disallowance, no return on land is included in the rent proxy.
170. Since no disallowance of O&M costs or A&G costs is made due to the Building A disallowance, no O&M or A&G costs are included in the rent proxy.
171. No income taxes on the rent should be included in the rent proxy because taxes are the responsibility of the landlord.
172. Current garage space for vehicle maintenance accommodates one vehicle.
173. SGV's design for Building B accommodates two vehicles.
174. Since SGV has two personnel performing vehicle maintenance, each person could be working on a separate vehicle.
175. It is reasonable to have sufficient garage space in Building B for two vehicles.
176. SGV has not proposed to outsource vehicle maintenance in this proceeding and the record does not indicate that it would be cost-effective to do so.
Affiliate Costs Not Properly Attributable to SGV
177. Prior to SGV's December 31, 2004 acquisition of the land for the office complex from its unregulated affiliate, SGV recorded $22,205 in costs for a survey, demolition of an existing structure and asbestos abatement of the land.
Reasonableness Review-Sandhill
178. SGV's selection process for general contractor initially focused on B&V because of its successful completion of very similar nearby projects.
179. When SGV could not reach agreement with B&V, it went to Foster because of SGV's successful experience with Foster.
180. Foster's bid was slightly higher than B&V's.
181. The amount in ratebase for Sandhill was to be increased by advice letter each year and the $35 million cap provided an overall limit for the GRC cycle.
182. Lytle Creek water comes to Sandhill from the SCE afterbay below SCE's power house on Lytle Creek.
183. The afterbay is fed by a penstock from SCE's powerhouse that is designed to deliver up to 40 mgd to the afterbay.
184. SCE has a contractual obligation to deliver up to 38 mgd to the afterbay.
185. As a practical matter, since Sandhill could not previously handle more than 17 mgd from the afterbay, there has been no need for SCE to supply a greater amount of water to the afterbay.
186. From the afterbay, 6.7 mgd is diverted to other water providers.
187. The record shows that stream flows in Lytle Creek have been sufficient to supply 38 mgd to the afterbay on some occasions, but SCE has not diverted all of the water it could to the penstock.
188. When sufficient flows are available in Lytle Creek, 29 mgd can be made available in the afterbay for SGV's use.
189. Sandhill is physically capable of treating 29 mgd of Lytle Creek water if sufficient water is available in Lytle Creek.
190. The upgraded Sandhill water treatment plant is in service providing water to SGV.
191. SGV meets all applicable drinking water quality standards.
192. SGV's customer service is sufficient.
193. SGV's Master Plan is in compliance with the Commission's requirements.
1. Rule 12.1(d) provides that the Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest.
2. The settlement, with the alternative settlement terms, is reasonable in light of the whole record.
3. The settlement, with the alternative settlement terms, is consistent with law.
4. The settlement, with the alternative settlement terms, is in the public interest.
5. The settlement, with the alternative settlement terms, should be adopted.
6. To the extent elements of the settlement are modified, other elements of the settlement that are based on the modified elements should be modified accordingly.
7. The number of customers in the settlement is reasonable.
8. The sales per customer forecasts included in the settlement are reasonable.
Miscellaneous Expense-Litigation Expenses Not Related to Water Quality
9. Expenses for the Slemmer suit should be excluded from the five-year average because the expenses are one-time non-recurring expenses.
10. COF's recommendation of a $202,300 (2007 dollars) reduction in the Miscellaneous Expense-Litigation Expenses Not Related to Water Quality amount adopted in the settlement should be adopted. The settlement, without this alternative term, is not in the public interest.
11. The settlement amount for regulatory commission expenses is reasonable.
Ratemaking Treatment of Investments in Shares of Fontana Union Water Company
12. Since the risk to ratepayers of SGV losing access to FUWC water rights does not appear to be very high, the acquired water rights should be valued at $3,540 per acre foot, which translates to a stock value of $8,850, or $1,585,920 for the 179.2 shares.
13. Since the Slemmer settlement had no significant value to ratepayers regarding the 358.6 FUWC shares previously acquired by SGV, there is no reason to allow an additional portion of the costs of the Slemmer settlement in ratebase.
14. $1,585,920 of the Slemmer settlement costs attributable to the value to ratepayers of the additional 179.2 shares of FUWC stock should be allowed in ratebase and none of the other costs related to the Slemmer suit should be allowed in ratebase. The settlement, without this alternative term, is not in the public interest.
15. D.07-04-046 provided for the collection of facilities fees from developers, builders, and new customers.
16. D.07-04-046 requires that facilities fees collected must be credited to CIAC at the time the fees are spent for additional plant, and earn interest.
17. The amount of facilities fees included in the settlement should be increased by the facilities fees collected through September 2008 and by $1,000,000 forecasted to be collected between October 2008 and June 30, 2009. The settlement, without this alternative term, is not in the public interest.
18. The inclusion of facilities fees in the annual revenue requirement advice letter filings, as provided for in Ordering Paragraph 3 of D.07-04-046, should be continued through this GRC cycle.
Plans for Developing Recycled Water Service
19. Section 455.1 provides a process to be followed if an advice letter is filed regarding recycled water service.
20. Nothing in § 455.1 prohibits the Commission from requiring that SGV file an application rather than an advice letter to initiate recycled water service.
21. The recycled water project should be addressed through an application after agreement has been reached. The settlement, without this alternative term, is not in the public interest.
22. The settlement amount for Plant F13 is reasonable.
23. The settlement is reasonable in regard to the planned facilities at Plant F16.
24. Given the importance of meeting all applicable drinking water standards and ensuring adequate sources of supply, especially during drought conditions, the settlement provisions regarding Plant F17 are reasonable.
25. The settlement provisions regarding Plant F21 are reasonable.
26. SGV should be authorized to file a ratebase offset advice letter for the project proposed for Plant F21 only after it is completed, used and useful. The settlement, without this alternative term, is not in the public interest.
27. The settlement provisions regarding Plant F23 are reasonable.
28. SGV should be authorized to file a ratebase offset advice letter for the project proposed for Plant F23 only after it is completed, used and useful. The settlement, without this alternative term, is not in the public interest.
29. The settlement amount for mains is in line with recent recorded amounts, and is reasonable with a $1,000,000 reduction for 2011. The settlement, without this alternative term, is not in the public interest.
30. The settlement amounts for polyethylene services are reasonable.
Reasonableness Review-Burden of Proof
31. Since SGV has the burden of proof it must demonstrate each project is used and useful, needed and constructed at a reasonable cost.
32. SGV should develop competitive bidding guidelines and include them as an exhibit in its next GRC proceeding for either of its divisions. The guidelines should include, but not be limited to, criteria for determining when competitive bidding should be used and how the competitive bidding process should be carried out.
33. SGV has had more than ample opportunity to meet its burden of proof regarding the reasonableness of post-2002 plant additions in this proceeding.
Reasonableness Review-Job No. 4761-Plant F16-Install Electrical Panel
34. The Job No. 4761 recorded cost is reasonable.
Reasonableness Review-Job No. 4822-Plant F53-Acquisition of
Land Parcel No. 215
35. Treatment of Land Parcel No. 215 as PHFU is inappropriate and it should not be included in ratebase.
36. In order to provide equitable treatment of SGV and its customers regarding Land Parcel No. 215 that may have a future use, SGV should be authorized to establish a memorandum account that will list the costs incurred or associated with holding the property for future use. If the property is ultimately used as planned, SGV may request recovery of such costs.
Reasonableness Review-Job No. 4870-Plant F7-Drill and Equip Well F7B, Construct Reservoir F7A, Booster Station and Site Improvements
37. Since SGV has not met its burden of proof regarding the costs of the Job No. 4870 retaining wall, the costs of the retaining wall ($537,868) should be excluded from ratebase.
Reasonableness Review-Job No. 4895-Plant F51 Acquisition of Land Parcel No. 221
38. Treatment of Land Parcel No. 221 as PHFU is inappropriate and it should not be allowed in ratebase.
39. In order to provide equitable treatment of SGV and its customers regarding Land Parcel No. 221 that may have a future use, SGV is authorized to establish a memorandum account that will list the costs incurred or associated with holding the property for future use. If the property is ultimately used as planned, SGV may request recovery of such costs.
Reasonableness Review-Job No. 4901-Linden Avenue North
of Casmalia Street Install 42-Inch Pipeline
40. The Job No. 4901 project was necessary even without the Sandhill upgrades and is reasonable.
Reasonableness Review-Job No. 4982-Cherry Avenue South of Foothill Boulevard - Install 24-Inch and 16-Inch Pipelines
41. The Job No. 4982 project is reasonable.
Reasonableness Review-Job No. 5025-Sierra Ave. North of Baseline Avenue - Install 24-Inch Pipeline, Services and Fire Hydrant
42. SGV's choice of 24-inch pipe for Job No. 5025 is reasonable.
43. The Job No. 5025 project is reasonable.
Reasonableness Review-Job No. 5089-Baseline Avenue East of Cypress Avenue - Install 24-Inch Pipeline, Services and Fire Hydrants
44. SGV's choice of 24-inch pipe for Job No. 5089 is reasonable.
45. The Job No. 5089 project is reasonable.
Reasonableness Review-Job No. 5111-Walnut Avenue West of Sierra Avenue - Install 24-Inch Pipeline
46. For the Job No. 5111 project, SGV has not met its burden of proof and Job No. 5111 should be excluded from ratebase.
Reasonableness Review-Job No. 5199-Plant F13-Recoat Interior and Exterior of Reservoir F13(L)
47. The Job No. 5199 project and its costs are reasonable.
Reasonableness Review-Job No. 5205 and Job No. 5316-Systemwide-Install Services, Plastic Service Replacement 2007 and 2008
48. SGV's expenditures for the Job No. 5205 and Job No. 5316 projects are reasonable.
Reasonableness Review-Headquarters Office Complex
49. In D.07-04-046, the Commission stated: "While we do not doubt that more office space is needed by San Gabriel, it has not convinced us that its proposed size is reasonable."
50. In D.07-04-046, the Commission stated: "In its next rate case, costs should be reviewed for prudence and the facility's size evaluated to determine whether the entire facility is used and useful."
51. In D.07-04-046, the Commission stated: "San Gabriel shall remove from rate base the existing HQ facilities...once it is no longer used and useful or upon inclusion of the New Headquarters building in ratebase, whichever comes sooner."
52. In Finding of Fact 51 of D.07-04-046, the Commission stated: "In regard to the new office/warehouse, San Gabriel should remove the facilities that are to be replaced from ratebase immediately upon the occupation of a new headquarters building."
53. In D.07-04-046, the Commission found that the Office Complex is needed to provide some amount of office space, but did not determine that the proposed size is reasonable.
54. No disallowance for the Office Complex, based on the choice of general contractor, is appropriate.
Building A-Reasonable Costs and GO Allocation
55. In D.08-06-022, the Commission determined that it would be reasonable to move 27 GO employees to Building A to relieve overcrowding in the GO facilities, but left the allocation of space and costs to this proceeding.
56. D.08-06-022 recognized that Building A will have sufficient room to accommodate the additional 27 GO employees, but did not determine that Building A should be built to accommodate them.
57. Since the Building A related costs attributable to the nine GO employees are 20.5% (9/44) of the total reasonable costs of Building A or $2,034,322, these costs should be included in the GO ratebase and excluded from the Fontana Division ratebase.
58. Reasonable Building A related costs of $7,911,251 should be included in the Fontana Division ratebase.
Reasonable Costs for the Remaining 16 GO Employees
59. Since the extra space in Building A will never be needed by the Fontana Division and was not constructed for the purpose of temporarily relocating GO employees, it should not be treated as utility property.
60. The reasonable proxy for annual rent for the 16 GO employees is $156,718.
61. In the next GRC, SGV should be required to provide information on the historical (2009-2011) costs and forecast costs of rental office space throughout SGV's service territories, not just the Fontana Division, of a type suitable for the 16 GO employees addressed herein.
62. The reasonable costs for Building B are $5,078,396.
Affiliate Costs Not Properly Attributable to SGV
63. $22,205 in recorded costs for the Office Complex was incurred before SGV acquired the land, are attributable to its unregulated affiliate, are not recoverable from ratepayers and should be excluded from rate base.
Reasonable Office Complex Costs
64. The reasonable costs of the Office Complex for the Fontana District are $12,967,441.
65. $2,034,322 should be included in the GO ratebase for reasonable Building A space for nine GO employees and $156,718 should be included in the GO expenses as a proxy for rent for 16 GO employees.
66. Sections 789.1 and 790 require that the proceeds from the sale of water utility property that was once used and useful in providing service to customers shall be reinvested in utility infrastructure that goes into ratebase. Any proceeds not reinvested in utility infrastructure within eight years are to be allocated to ratepayers.
Reasonableness Review-Sandhill
67. The need for the Sandhill upgrade, including cost-effectiveness, was addressed in D.07-04-046.
68. In D.07-04-046, the Commission stated: "We find the Sandhill treatment facility to be needed and building it is reasonable."
69. In Finding of Fact 42 of D.07-04-046, the Commission stated: "The Sandhill plant is cost-effective and it is reasonable to construct it."
70. In D.07-04-046, the Commission found that the Sandhill project is needed.
71. Since SGV's process for selecting a general contractor for Sandhill resulted in consideration of comparable bids from two well qualified contractors, it is reasonable.
72. In D.07-04-046, the Commission imposed a cap for Sandhill of $35 million.
73. D.07-04-046 does not indicate that the $35 million cap for Sandhill was intended as a permanent overall cap on the Sandhill upgrades.
74. Sandhill is used and useful and its costs are reasonable.
75. SGV should focus on reducing leaks and take the necessary steps to maintain customer service during its transition to the Office Complex.
76. In Ordering Paragraph 16 of D.04-07-034, the Commission directed SGV to develop a water management/engineering report to provide more comprehensive guidance for its utility plant and infrastructure construction projects in the Fontana Division.
Balancing and Memorandum Accounts
77. SGV's request to amortize the balance in the Water Quality Litigation Memorandum Account as of the effective date of this decision, over a one-year period through a surcharge is unopposed and should be granted.
78. SGV's request to file an advice letter to amortize the balance in the Water Quality Memorandum Account as of the effective date of this decision, including interest, is unopposed and should be granted.
79. SGV should be authorized to continue to record in its Water Quality Memorandum Account future costs incurred, proceeds received from polluters and grants received from governmental agencies related to water quality, including but not limited to capital costs, and operations and maintenance costs of needed wellhead treatment facilities that cannot reasonably be forecasted for the test years and are not included in the GRC.
80. SGV's request for authority to continue to file advice letters to adjust rates for facilities fees revenues is unopposed and should be granted.
IT IS ORDERED that:
1. The joint motion of San Gabriel Valley Water Company and the Division of Ratepayer Advocates to approve a settlement agreement, included herein as Attachment A, is denied and the settlement agreement with seven alternative terms is adopted. The alternative terms are addressed in Sections 6, 8, 9, 10, 14, 15 and 16 of this decision, and in Conclusions of Law 10, 14, 17, 21, 26, 28 and 29.
2. For matters other than those addressed in Ordering Paragraph 1, San Gabriel Valley Water Company's application is granted only to the extent specified in this decision and is otherwise denied.
3. San Gabriel Valley Water Company is authorized to file by compliance advice letter the revised tariff schedules attached to this order as Attachment ____, and to concurrently cancel its present schedules for such service. This filing shall be subject to approval by the Commission's Division of Water and Audits. The effective date of the revised schedule shall be July 1, 2009 and shall apply only to service rendered on or after that date.
4. Escalation advice letters for July 2010 and July 2011, including workpapers, may be filed in accordance with General Order 96-B no later than 45 days prior to the first day of the escalation year. To the extent that the pro forma earnings test for the 12 months ending September 30, as adopted in D.04-06-018, exceeds the amount authorized in this decision, the requested increase shall be reduced by the utility from the level authorized in this decision to conform to the pro forma earnings test. Advice letters filed in compliance with this decision shall be handled as Tier 1 filings, effective on the first day of the test year. Advice letters not in compliance with this decision shall be rejected consistent with General Order 96-B.
5. San Gabriel Valley Water Company shall develop competitive bidding guidelines and include them as an exhibit in its next general rate case proceeding. Such guidelines shall include, but not be limited to, criteria for determining when competitive bidding should be used and how the competitive bidding process should be carried out.
6. The inclusion of facilities fees in the annual revenue requirement advice letter filings, as provided for in Ordering Paragraph 3 of D.07-04-046, shall be continued through this general rate case cycle.
7. If, after it reaches an agreement with the City of Fontana, San Gabriel Valley Water Company decides to provide recycled water service, it shall do so through an application.
8. As provided for in the settlement, San Gabriel Valley Water Company is authorized to file ratebase offset advice letters for the projects proposed for Plant F21 and Plant F23 only after each project is completed, used and useful.
9. San Gabriel Valley Water Company is authorized to establish a memorandum account for Land Parcel Nos. 215 and 221 that will list the costs incurred or associated with holding the property for future use. If the properties are ultimately used as planned, San Gabriel Valley Water Company may request recovery of such costs.
10. In the next general rate case, San Gabriel Valley Water Company shall provide information on the historical (2009-2011) costs and forecast costs of rental office space throughout its service territories, not just the Fontana Division, of a type suitable for the 16 General Office employees addressed herein.
11. Application 08-07-009 is closed.
This order is effective today.
Dated , at San Francisco, California.
INFORMATION REGARDING SERVICE
I have provided notification of filing to the electronic mail addresses on the attached service list.
I will cause a Notice of Availability of the filed document to be served upon the service list to this proceeding by U.S. mail. The service list I will use to serve the Notice of Availability of the filed document is current as of today's date.
Dated May 15, 2009, at San Francisco, California.
/s/ FANNIE SID |
Fannie Sid |
************** PARTIES ************** |
Selina Shek |
