Conclusions of Law
1. The RSF settlement entered into by all parties to this proceeding is an uncontested settlement as defined in Rule 51(f).
2. The stipulation on remaining issues entered into by CalWater is an uncontested stipulation as defined in Rule 51(f).
3. The RSF settlement and the stipulation on remaining issues are reasonable in light of the whole record, consistent with law, and in the public interest.
4. The RSF settlement and the stipulation on remaining issues should be approved.
5. The WRAM stipulation should not be approved.
6. For each of the eight districts in this proceeding, CalWater should be required to collect subject to refund the amount of its adopted revenue requirement that results from our computational assumption that the American Jobs Creation Act of 2004 does not apply, until our order finally establishing in a future proceeding the actual tax benefit, if any, conveyed to CalWater under the Act. CalWater should report the amount so collected and the status of its tax liability under the Act in each GRC for these districts until the Commission has made a final determination.
7. CalWater has complied with applicable federal and state water quality standards and the water quality requirements of GO103 in these eight districts during the recent three-year period.
8. The increases authorized in this decision are justified, and the revised rates set forth in Appendix C are just and reasonable.
9. CalWater should be authorized to implement the rate changes set forth in this order.
10. This decision should be made effective immediately to allow CalWater to put the revised rates into effect as near as possible to the first day of the test year.
IT IS ORDERED that:
1. The Joint Motion of California Water Service Company (CalWater) and Division of Ratepayer Advocates (DRA) to Approve Stipulation Concerning Rate Base Equalization Account Settlement, filed March 2, 2006, is granted. The settlement included as Attachment A to that motion and referred to in this order as the Rate Support Fund (RSF) settlement is approved.
2. The Joint Motion of California Water Service Company and Division of Ratepayer Advocates to Approve a Stipulation concerning the Water Revenue Adjustment Mechanism and a Stipulation regarding Remaining Issues, filed March 9, 2006, is granted in part and denied in part. The Revenue Adjustment Mechanism Agreement included as Attachment A to that motion and referred to as the WRAM stipulation is not adopted. The Stipulation of California Water Service Company and the Division of Ratepayer Advocates included as Attachment B to that motion and referred to in this order as the stipulation on remaining issues is adopted.
3. CalWater shall within 60 days file a new application that addresses the goals of the Water Action Plan by proposing an increasing block rate design for each of the districts in this general rate case for years 2007/2008 and 2008/2009, and an accompanying mechanism to decouple sales from revenues.
4. CalWater is authorized to file in accordance with General Order 96-A and make effective on not less than five days' notice revised tariff schedules for each district and rate area in this proceeding, reflecting the adopted rates for test year 2006/2007 included as Appendix C to this order. The revised tariff schedules shall apply to service rendered on and after the date this decision is mailed.
5. Not later than May 15, 2007 and May 15, 2008 for escalation years 2007/2008 and 2008/2009 respectively, CalWater shall file advice letters in conformance with General Order 96-A or its successor proposing new revenue requirements and corresponding revised tariff schedules for each district and rate area in this proceeding. CalWater's advice letters shall follow the escalation procedures set forth in the Commission's Rate Case Plan for Class A Water Utilities, and shall include appropriate supporting workpapers. CalWater shall reduce the escalation year revenue requirement for any district or rate area to the extent its rate of return on rate base for the twelve months ending March 31, 2007 and March 31, 2008 for that district or rate area, taking into account the rates then in effect and normal ratemaking adjustments, exceeds the rate of return found reasonable in this order. The revised tariff schedules shall take effect on July 1, 2007 and July 1, 2008, respectively, and shall apply to service rendered on and after their effective dates. The proposed, revised revenue requirements and rates shall be reviewed by the Commission's Water Division. Water Division shall inform the Commission if it finds that the revised rates do not conform to the Rate Case Plan, this order, or other Commission decisions, in which case all revenues collected under the revised rates shall be subject to refund until the Commission has decided the matter.
6. CalWater shall use a full recorded earnings test in evaluating, and if necessary, adjusting, its 2007/2008 and 2008/2009 escalation year filings for Redwood Valley district, and a modified recorded earnings test based on weather-adjusted earnings using temperature and rainfall coefficients set forth in Appendix E, Adopted Quantities, of this order for the other seven districts subject to this order.
7. CalWater is authorized to file an advice letter to begin recovering in rates the change in revenue requirement for each group of related projects listed in Appendix F, after that group of projects has been completed and placed in service. The plant costs used for advice letter purposes shall not exceed the cap listed for each group of projects. Each advice letter shall become effective when Water Division has determined that it is in compliance with CalWater and DRA's stipulation on remaining issues and this decision. This authorization shall expire as of the effective date of the new rates set for each district in the first test year in CalWater's next general rate case (GRC) for that district, currently anticipated to be July 1, 2009. When new rates are set in the next GRCs for these districts, rate recovery going forward for each project shall be as determined by the Commission at that time.
8. CalWater is authorized to file a single advice letter to begin recovering in rates the incremental revenue requirement associated with Projects 8087, 14318, and 14319 in Coast Springs rate area when all three have been completed and placed in service and all of their associated costs properly booked. The advice letter shall become effective when Water Division has determined that it is in compliance with this decision. The company-funded plant costs (i.e., exclusive of State Revolving Fund and Safe Drinking Water Bond Act loan funding) used for advice letter purposes shall not exceed $227,800 for Project 14318, and $114,000 for Project 14319. The capped plant amounts determined in the advice letter filing shall be considered interim and will become final after the next CalWater Coast Springs GRC unless CalWater and/or the other parties there present persuasive evidence supporting a different final outcome.
9. The conservation expense figures in Table 4 of this decision are adopted as the three-year budget totals for each district and rate area. For purposes of setting rates in this proceeding, they shall be divided equally among the three years of this GRC cycle and are not subject to the Water Rate Case Plan's escalation procedures in the second and third years.
10. CalWater shall track its actual conservation expenses by district against the corresponding conservation expense budget allowances defined by Table 4 and adopted in this order, in a one-way balancing account. In its next GRC filing for each district, CalWater shall propose to refund to customers any under-expenditure for their district in the account. No recovery is authorized for expenditures above the adopted budgets.
11. For each of the eight districts in this proceeding, CalWater shall collect subject to refund the amount of its adopted revenue requirement that results from our computational assumption that the American Jobs Creation Act of 2004 does not apply, until our order finally establishing in a future proceeding the actual tax benefit, if any, conveyed to CalWater under the Act. CalWater shall report the amount so collected and the status of its tax liability under the Act in each GRC for these districts until the Commission has made a final determination.
12. The provisions in Decision 05-07-022, Ordering Paragraph 9 and Attachment B, Section 2.1.3.9, wherein the Commission authorized CalWater to file advice letters to recover the costs of up to 15 specific general office personnel after each has been hired and to recover the costs associated with general office expansion project 10867 not to exceed the equivalent of the revenue requirement on $887,000 in capital additions (or in the alternative, to rent nearby office space at equivalent or lower cost), are made applicable to the districts in this proceeding as well.
13. The following amounts resulting from our evaluation of the synergies savings generated by CalWater's merger with Dominguez Services Corporation are adopted for the 2006/2007 test year and shall be used in future CalWater rate proceedings: general office merger savings are $5,035,000; operations cost savings allocated to the districts are $406,455 to Dominguez-South Bay district, $252,105 to Hermosa-Redondo district, and $298,410 to Palos Verdes district; and financing-related merger savings are $550,000 in Dominguez-South Bay district.
14. CalWater is authorized to file an advice letter(s) to begin recovering amounts booked in the general office synergies memorandum account for the Bear Gulch, Hermosa-Redondo and Marysville districts from the effective date of Decision 04-04-041 through January 1, 2006.
15. If CalWater should lose 5% or more of its well production capacity in Dominguez-South Bay district during this three-year GRC cycle, it may file an advice letter initiating a water expense memorandum account for that district to track changes in water production costs due to mix changes only, to be effective on the date of filing. Production expense changes due to wholesaler price changes would continue to be tracked in the existing water supply balancing accounts. Once established, CalWater may seek Commission approval in its next GRC for Dominguez-South Bay district to recover up to 90% of any balance in the new memorandum account.
16. The capital structure, cost of debt, rate of return on equity, and rate of return on rate base shown in Table 3 are adopted for the 2006/2007 through 2008/2009 GRC cycle.
17. The summaries of earnings presented in Appendix A, the adopted 2006/2007 and 2007/2008 rate bases in Appendix B, and the quantities and calculations included as Appendix E to this order that underlie them, are adopted.
18. CalWater's requests in Application 05-08-006 through Application 05-08-013 are granted as set forth above, and in all other respects are denied.
19. This proceeding is closed.
This order is effective today.
Dated ___________, at San Francisco, California.
A0508006 et al. McVicar Appendices A thru H
