7. Rate Design Settlement

On November 24, 2008, Cal-Am and DRA filed their Settlement Agreement as to Rate Design Issues, which is Attachment A to today's decision. Comments opposing certain components of the settlement were filed by the Water Management District, Independent Reclaimed Water Users Group, and Hidden Hills Subunit Ratepayers Association.

The rate design settlement applies to the Monterey main system and the Ambler Park, Bishop, Hidden Hills, Ryan Ranch, Chualar, and Ralph Lane systems. Customers in the Monterey Main System, Ryan Ranch, Hidden Hills, and Bishop will be on the same rates and rate design, after a three-year transition period for Hidden Hills and a six-year transition period for Bishop. The settlement agreement provides that rates and rate design for customers in Ralph Lane will not change as a result of this proceeding, and the rate increase for Chualar shall be limited to an escalation of 9.17%. Ambler Park will have a separately calculated water sales adjustment mechanism.

The rate design changes are generally directed at creating financial incentives for customers to improve the efficiency of their water use by allowing customers an allotment of low-priced water, with prices steeply increasing for use above the Block 1 allotment. For residential customers, the Block 1 allotment is set based on the number of people residing at the service address as well as large animals. For non-residential customers, the Block 1 allotment is based on historical water use and best management practices.

Specifically, the number of people and large animals residing at the residential service address determine the amount of water in each of the five blocks of increasing price, as indicated in the table below. Each person is allocated 1.5 ccf or about 37.5 gallons/day and large animals get 0.5 ccf or 12.5 gallons/day in each block. In addition, during summer months, the higher blocks, three (200% of base rate), four (400% of base rate), and five (700% of base rate) include landscaping irrigation allowances based on lot size that range from 1 ccf or 25 gallons/day to 3 ccf or 75 gallons per day. The base rate will be calculated using the final adopted revenue requirement. For purposes of the Settlement Agreement, the parties assumed that the Commission granted Cal-Am one-half its requested increase.

Residential Block Rates

For non-residential customers,261 the Settlement Agreement adopts a three-level increasing block rate structure. Each customer's monthly allotment, i.e., service to be provided in the lowest-priced block, will be based on audits using best management practices for that type of business. To the extent the non-residential customer exceeds the total amount on an annual basis, the service will be billed at a higher block. All outdoor water use that is "not essential to the business function" will be billed at the higher block 2 or 3 rates.

Non-residential Block Rates

Block

Percent of Base Rate

1

100%

2

300%

3

700%

The Hidden Hills Subunit Ratepayers Association generally supported the conservation encouraging rate design, but opposed being included in the same tariff as Ryan Ranch. Hidden Hills contended that its subunit was largely residential, while Ryan Ranch was commercial.262

The Management District opposed the transition periods for Bishop and Hidden Hills, arguing that such periods diminish the effectiveness of conservation ratemaking. The Management District also advocated for periodic verification of claims of medical need for extra water allotment in Block 1.263

The Independent Reclaimed Water Users Group strongly supported Cal-Am's goal of using rate design to encourage water conservation, but contested the settlement agreement's continuance of the status quo for golf courses using potable water for irrigation. The Independent Reclaimed Water Users Group recommended that golf course use of potable water in Block 1 be set at 85% of historical usage to create a strong financial incentive to reduce such usage.264 The Independent Reclaimed Water Users Group also sought below-base, lower rates for Block 1, to mimic residential rate blocks, and "revenue positive" upper Blocks to fund water supply alternatives.265

In reply, Cal-Am explained that combining the Hidden Hills and Ryan Ranch tariffs is done for administratively efficiency and has no substantive effect. Cal-Am also stated that the record offers no support for the Management District's contention that rate design changes should be implemented simultaneously for all subsystems, or that customers abuse the medical needs adjustment.

Cal-Am's reply to the Independent Reclaimed Water Users Group first argues that neither it nor this "Commission have an obligation to provide an incentive to transition golf courses from the use of potable water to reclaimed water for irrigation purposes."266 Similarly, Cal-Am states that it "makes absolutely no sense" to set a customer's Block 1 allotment below what is required to meet its business needs and that the Commission should recognize a "higher principle that rate design should not penalize customers who are using water in compliance with best management practices."267

Rule 12.1(d) requires that in order for a settlement to be approved by the Commission, the settlement must be: (1) reasonable in light of the whole record, (2) consistent with the law, and (3) in the public interest. We find that each element is present here.

The parties contend the Settlement Agreement is reasonable in light of the whole record because it takes into account the principles of conservation rate design and the unique features of the Monterey district. The parties have compromised their differences over the specific ratemaking approaches to achieve the conservation goal.

We agree that the settlement is reasonable in light of the record.

The proposed settlement is consistent with the law. The parties explain that the proposed rate design is just and reasonable as required by Pub. Util. Code § 451. We find that the settlement is consistent with the law.

Finally, we find that the settlement is in the public interest. The proposed settlement agreement provides for more aggressive conservation rate design, while allowing for sufficient lower-priced water for essential usage. The public interest would also be served by approval of the settlement agreement as an efficient means to resolve this application.

For the foregoing reasons, the Commission finds that the rate design settlement is reasonable in light of the whole record, is consistent with the law, and is in the public interest.

261 Non-residential customers are commercial, industrial, public authority, golf courses (potable), golf courses (non-potable, Viscaino tank), and dedicated irrigation customers. See Settlement Agreement Section "V."

262 Opening Brief of Hidden Hills Subunit Ratepayers Association at p. 2.

263 Comments of the Water Management District at p. 7.

264 Comments of the Independent Reclaimed Water Users Group at p. 20.

265 Id., at p. 22.

266 Cal-Am Reply Comments to Settlement Agreement Comments at p. 22.

267 Id., at p. 23.

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