Discussion

Section 455.2 allows Class A water utilities such as CalWater to request an inflation-indexed interim rate increase in the event a water general rate case is not completed by the first day of the first test year in the application, in this case, by July 1, 2006.

The Commission has set criteria³ for interim rate relief under Section 455.2, requiring that:

· the utility demonstrate that it has made a substantial showing in its application supporting a rate increase at least equal to the rate of inflation;

· the Commission determine whether interim relief is in the public interest; and

· the presiding officer's decision address whether the delay in completing the GRC proceeding is due to actions by the water corporation and, if so, the presiding officer's decision shall specify the utility's actions that caused the delay and shall include a proposed effective date for interim or final rates.

On the first criterion, CalWater states in its motion that the U.S. Bureau of Labor Statistics U.S. Cities CPI-U stood at 4.2% for the 12 months ending May 2006. CalWater did make showings in its applications in support of rate increases in excess of 4.2% for every district except one (Dominguez-South Bay). Subsequently, however, CalWater also entered into a settlement with DRA that addresses most of the contested components in its summary of earnings for each district,⁴ and on July 21, 2006 the ALJ filed his proposed decision recommending we adopt the settlement and grant test year 2006/2007 increases below 4.2% for four of the eight districts. Thus, we cannot confidently find that CalWater's showing, taken as a whole, supports rate increases for those four districts that are at least equal to the rate of inflation.

We next turn to the third criterion, the cause for any delays, before returning to address the public interest.

CalWater's motion points to three primary factors as causes of significant delay in the proceeding: its delayed application filings, multiparty settlement negotiations, and post-submission deliberations.

CalWater's motion explains that its 39-day delay in filing the formal application was at the behest of DRA due to staffing considerations, and was approved by the Commission's Executive director. We accept that explanation. The Assigned Commissioner's scoping memo set a schedule that accommodated CalWater's later filing date and, absent any other delays, would have produced a decision on time. While an on-time filing might have led to an on-time decision, the late filing was not a CalWater-caused source of delay.

There were three proposed partial settlements filed in this proceeding. The Commission through its Water Action Plan encourages parties to explore settlements and stipulations.⁵ Accordingly, both the ALJ in two prehearing conferences (one held specifically for that purpose) and after, and the Assigned Commissioner in his scoping memo, urged the parties to discuss their differences and arrive at commonly agreed-upon positions wherever possible, and to do so well in advance of the evidentiary hearings. The Commission's Rate Case Plan also anticipates such discussions by providing additional time for what it terms "Formal Settlement Negotiations" beginning the week after the utility serves its rebuttal testimony.

The first settlement proposed a Rate Support Fund and was filed on March 2, the last permissible date under the Commission's Rules of Practice and Procedure, Rule 51.2.⁶ That all-party settlement was timely and cannot be said to have caused delay.

The second proposed settlement (referred to in the ALJ's proposed decision as the stipulation on remaining issues) addressed most of the summary of earnings and related issues and provided the Rate Case Plan-mandated comparison exhibit. Although it was tendered on March 9, one week after the normal deadline, and only accepted for filing pursuant to an ALJ's ruling, the assigned ALJ did not consider that a significant factor contributing to delay in the proceeding because the settlement was complete and could be acted upon.

The third settlement (referred to as the WRAM stipulation) was also late-tendered and accepted for filing with the second by the ALJ's ruling. It addressed a proposed new revenue adjustment mechanism and an increasing block rate design to be implemented in all eight districts. The ALJ's proposed decision explains his conclusion that this settlement was incomplete and did not provide the Commission with sufficient information to discharge its regulatory obligations. Most importantly, while the settling parties, CalWater and DRA, acknowledged that more information was needed (i.e., rate design criteria intended to define the parties' agreed-to increasing block rate structure), they were unable to meet their written commitment to provide that information for the record by a date they chose, and then did not follow through with their subsequent commitment to file a motion proposing a new timetable for moving the proceeding forward.

As we have noted above, we encourage parties in water general rate proceedings to propose negotiated outcomes that serve the interests of both utilities and their customers. CalWater states that the parties worked diligently and collaboratively toward developing a joint utility-DRA approach that would address the Commission's interest in promoting water conservation and decoupling revenues from sales volumes. We believe that to be the case and commend them for their efforts. At the same time, however, CalWater acknowledges that the Commission's post-submission deliberations over its proposed settlement with DRA on these topics may be lengthy and may contribute to a delay in issuing the final decision. That has certainly been the case; the additional delay attributable to our deliberations over the WRAM stipulation has been due at least as much to their unmet commitments to finalize their proposal for the record as it has been to the complexity of the two important issues it addresses. Nonetheless, we can neither quantify the resulting delay and apportion it between the two settling parties,⁷ nor are we inclined to do so. We conclude that CalWater should not be held responsible for any delay related to the WRAM stipulation or our subsequent deliberations pertaining to it.

As CalWater points out, the Legislature in enacting Section 455.2 has determined that it is in the public interest for the Commission to issue its final decision by the beginning of the first test year. Where that is not possible, it is in the public interest to authorize interim rates at the beginning of the test year, or on a different effective date if the delay is attributable to actions of the utility. Accordingly, we find it is in the public interest to grant CalWater's request to establish interim rates pending our decision on final rates for test year 2006/2007. We address next the effective date for those interim rates.

CalWater cites three previous decisions under which it has been granted interim rate relief under Section 455.2. In none of those was the interim rate relief made effective retroactively in the manner CalWater seeks today. In D.03-04-033, it was granted interim rate relief effective on the effective date of the interim decision (April 10, 2003 for a calendar 2003 test year). In D.03-10-072, it was granted interim relief effective on the expected date of Commission approval under the then-existing rate case plan or the effective date of the interim decision, whichever would be later. In D.04-09-038 (as modified by D.05-03-002), the Commission affirmed a March 2004 ALJ ruling finding that CalWater's general rate proceeding was not expected to be completed within the time specified by the rate case plan and authorizing interim rate relief effective on July 1^st of the calendar 2004 test year (i.e., prospectively from the time of the authorizing ruling).

In implementing the Rate Case Plan, the Commission concluded that, "Requests for interim rate relief should be made by motion of the utility applicant. The Presiding Officer will then prepare a decision for the Commission's consideration."⁸ CalWater's motion for interim relief was filed on July 6, 2006. Through CalWater's action in filing its motion on that date, the earliest possible opportunity for the Commission to consider a decision granting interim rates would have been at its meeting of July 20. Thus, we will make CalWater's interim rates effective on July 20, 2006, the earliest date the Commission could have acted to grant CalWater's motion.

Under Section 455.2(b), "The commission may authorize a lesser increase in interim rates if the commission finds the rates to be in the public interest." Customers' billings will eventually be adjusted to collect the difference between whatever level of interim rates we grant today and our final adopted rates, so the interim rate level we set will affect the timing of CalWater's revenues but not their overall amount. As we noted earlier, we cannot find that CalWater's showing, taken as a whole, supports rate increases that are at least equal to the rate of inflation for four of the eight districts in this proceeding. Because this decision may be considered at the same time as an order adopting final rates, it is also possible that our interim rates will be in effect for a short period. An interim rate increase based on the rate of inflation would be inappropriate in some districts, and confusing to ratepayers in all districts to the extent that interim and final rate adjustments would follow in rapid succession. Under these circumstances, we find it would be in the public interest to adopt CalWater's alternative proposal of establishing its present rates as interim rates, subject to refund, and to be adjusted upward or downward back to the interim rates' effective date consistent with the final rates adopted by the Commission in this proceeding.

Finally, the Rate Support Fund all-party settlement proposes low-income and high cost district subsidies be established in certain areas, to be funded by surcharges imposed in all 24 CalWater districts. If the Rate Support Fund provisions are adopted, the high-cost district subsidies should be made available to the affected customers on the same timetable as any related backbilling that results from our approving interim rates. This condition should not apply to low-income subsidies because no low-income customer will have established eligibility for the period during which interim rates are in effect. The 24-district Rate Support Fund surcharge should not be imposed back to the effective date of interim rates because any shortfalls would be made up in due course through the Rate Support Fund balancing account.

³ Decision (D.) 04-06-018 (June 9, 2004).

⁴ The significant exceptions are the parties' plant in service differences in the Coast Springs area of Redwood Valley district and the return on equity determination for all eight districts.

⁵ "[T]he Commission may encourage parties to seek negotiated resolution of issues as early as possible in a case, including prior to the filing of prepared testimony, to lower the burden of regulation on all participants." (Water Action Plan, December 15, 2005, page 20).

⁶ Rule 51.2 provides, "Parties to a Commission proceeding may propose a stipulation or settlement for adoption by the Commission... within 30 days after the last day of hearing."

⁷ Under Commission Rule 51.9, settlement discussions are confidential and may not be disclosed outside the negotiations without the consent of the participating parties.

⁸ D.04-08-018 (June 9, 2004), Conclusion of Law 9.