8. Fluoridation Costs
SJWC requested a memorandum account for costs related to fluoridation activities. DRA opposed SJWC's request on the basis that the request is premature and does not meet the Commission's conditions for establishing a memorandum account.68
California Health and Safety Code Section 116415 requires a water utility to implement fluoridation into its water system if third party funding is available to cover the capital costs and the first year's operations.
SJWC requested authority to establish a fluoridation memorandum account because it was approached by an organization named Health Trust that set a goal to fund all the initial capital costs of implementing fluoridation into SJWC's water system plus the first year's operating and maintenance costs, and associated operations.69
To date, Health Trust is in a fundraising mode and has yet to commit funding for the capital improvements and first year's associated operations. The first part of Health Trust fundraising activities is to raise sufficient funds for a cost study to determine what the actual cost may be.70 SJWC does not know what the cost would be but believes it to be significant.71
Once Health Trust raises sufficient funds for all the capital improvements and first year's associated operations and guarantees those funds to SJWC, SJWC must implement fluoridation into its water system within two years.72 However, if Health Trust is unable to raise and guarantee sufficient funds for the capital improvements plus first year's associated operations, SJWC would be exempt from fluoridating its water system.73
SJWC, from an operations standpoint, expects to begin fluoridation within the next two years and have a potential shortfall in associated operations costs for which it would be liable in the third year of this GRC cycle.74 Regardless of when fluoridation begins, the California Health and Safety Code requires this Commission to approve rate increases for a public utility water system within 45 days of the filing of an application or advice letter in accordance with our requirements showing in reasonable detail the amount of additional revenue required to recover fluoridation associated costs.75 The authorization of a memorandum account would not meet this requirement as the establishment of a memorandum account does not increase rates, but only allows for a possible increase sometime thereafter. Accordingly, to meet the requirements of this provision of the Health and Safety Code, this Commission should establish a mechanism to allow for a prompt rate increase within the time frame contemplated by that statute. There should be no need for such a rate increase during the first year of the operation of the fluoridation system, as those costs are expected to be covered by the Health Trust or another outside party. Therefore we will authorize SJWC to file a Tier 2 advice letter to establish rates to recover the incremental O&M costs incurred in operating the fluoridation system beyond the first year, if sufficient funds are guaranteed to SJWC for the capital improvements plus the costs of the first year's operation. This advice letter should be filed no earlier than 90 days before the end of the first year of operation. The rates requested should be based on the actual recorded costs of operation, and subject to refund if those costs are found to be unreasonable. In addition, the advice letter should explain why the costs whose recovery is requested are incremental, and not already included in rates.
68 Exhibit 9 at 15-1.
69 Reporter's Transcript Vol. 6, p. 506.
70 Id.
71 Id. at p. 503 and p. 506.
72 Id. at p. 507.
73 Id. at p. 506.
74 Id. at p. 508.
75 California Health and Safety Code Section 116415(h).
