14. Assignment of Proceeding
John A. Bohn is the assigned Commissioner and Michael J. Galvin is the assigned ALJ in this proceeding.
1. The burden of proof in GRC applications, such as this proceeding, rests upon SJWC to demonstrate the reasonableness of its request.
2. There were two settlement agreements in this proceeding, a partial results of operations agreement and an all-party rate design agreement.
3. Rate design is not in dispute.
4. The test year difference in purchased power expense between SJWC and DRA resulted from DRA imputing five-year average power costs previously incurred at the Columbine Station as an ongoing expense to be recovered from ratepayers.
5. The test year difference in recycled water expense between SJWC and DRA resulted from SJWC including and DRA excluding conservation expenses for retrofitting recycled water landscape irrigation services.
6. The test year difference in non-tariff services revenues between SJWC and DRA resulted from the use of different forecasting methods for revenues received from non-tariff activities.
7. The test year difference in Rent between SJWC and DRA resulted from DRA imputing rent for SJWC's headquarters building in lieu of allowing that building in rate base.
8. SJWC used the Commission Division of Water and Audits' Standard Practice U-4 methodology for calculating its composite depreciation rate.
9. DRA deviated from Standard Practice U-4 in determining a net salvage value for SJWC's T&D mains salvage value.
10. DRA's net salvage value proxy for SJWC's T&D mains was based on a three-year-old depreciation study of a different water company having a large service territory made up of several small water systems with newer T&D mains substantially smaller than SJWC's T&D mains.
11. The Commission Division of Water and Audits' Standard Practice U-4 applies a uniform methodology to calculate depreciation reserves and expenses.
12. Although the Columbine solar project was designed to produce 112,791 kWh of power, the actual 2008 performance was 10% below designed production.
13. SJWC proposed to construct and integrate into its operating system three hydro-turbine projects, one each year.
14. DRA does not oppose SJWC undertaking a Cox hydro-turbine project as a pilot project for a two-year period.
15. Neither the Alum Rock hydro-turbine project nor the Hostetter hydro-turbine project has wells or pumps at their locations.
16. The test year difference in Montevina Station project costs between SJWC and DRA resulted from a difference on need for this four-year project to meet new water quality standards.
17. Effective January 2008, stricter standards on individual filter effluent turbidity were imposed as part of IESWTR.
18. Effective April 2012, water sample points are expected to change to comply with an updated State DBP2.
19. Most of SJWC's surface water comes from the Montevina Station.
20. SJWC was cited by the California Department of Public Health in January and February of 2008 for exceeding IESWTR operating criteria at the Montevina Station.
21. The test year difference in recycled water mains expenses between SJWC and DRA resulted from a difference in how recycled water mains projects should be funded.
22. SJWC purchases recycled water through a SBWR Program, which currently delivers approximately 10,000 AFY of its 50,000 AFY capacity to San Jose and other South Bay cities.
23. SJWC proposed three recycled water projects, one for each year of its GRC cycle, to serve identified users of recycled water for irrigation purposes and, in the long-term, groundwater recharging.
24. SJWC must substantiate that it has matching funds to cover at least half of project costs to obtain recycled water mains funding from the U.S. Bureau of Reclamation or from the State Clean Water State Revolving Fund.
25. The test year difference in the Pipeline Replacement Program between SJWC and DRA resulted from SJWC seeking to increase its 0.5% baseline replacement rate of 13 miles per year by 4 miles per year with a goal of achieving a 1.0% replacement rate per year by 2011.
26. SJWC's water system, dating back to 1866, has piping up to 140 years old. SJWC has approximately 230 miles of cast iron pipe with an average age of 75 years, of which 50 miles are over 100 years old. It also has 1,150 miles of steel pipe at an average age of 50 years, of which 20 miles are over 80 years old.
27. The test year difference in the meter replacement program between SJWC and DRA resulted from a difference regarding whether SJWC had a surplus of 1" and smaller meters in inventory.
28. General Order 103 sets forth rules prescribing minimum standards for water utilities to follow.
29. General Order 103 precludes SJWC from keeping meters smaller than 1" in service for more than 20 years and 1" meters in service for more than 15 years without being pulled, tested, or replaced.
30. The test year difference in the service replacement project between SJWC and DRA resulted from a difference in their assumptions regarding how much pipeline would be approved for replacement in this proceeding.
31. D.08-10-018 authorized SJWC to track costs of owning and renovating a new Main Office at the Taylor building and the Bascom building in a memorandum account for possible rate base recovery in this GRC.
32. SJWC found only eight buildings that met at least some of its minimum criteria for a replacement building in the downtown San Jose area, six of which were available for purchase and two for lease.
33. The lease alternative adopted by D.08-10-018 for a new Main Office was based on square footage needed to replicate and upgrade the old Main Office space.
34. D.08-10-018 found that a lease option for the Bascom building was the least cost alternative to purchasing the building.
35. SJWC's Engineer and Construction Department has occupied the entire second floor of the Bascom building under a lease agreement since 1999.
36. SJWC has requested authority to establish a fluoridation memorandum account.
37. 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.
38. Health Trust has yet to commit fluoridation funding for capital improvements and first year's operations.
39. SJWC should not be required to file Section 851 applications for Properties #214 and #276 because they were not necessary or useful when sold.
40. SJWC reported in its GRC minimum data response to DRA that Property #181 was no longer necessary or useful for public utility service and that it was in the process of selling that property.
1. The partial settlement agreement submitted by the parties is reasonable in light of the whole record, consistent with the law, and in the public interest.
2. The all-party rate design settlement agreement submitted by the parties is reasonable in light of the whole record, consistent with the law, and in the public interest.
3. The adoption of the partial and all-party settlement agreements does not constitute approval of, or create precedent regarding, any principle or issue in this proceeding or in any further proceeding.
4. DRA's imputed purchased power adjustment is not reasonable and should not be adopted.
5. Recycled water retrofit expenses proposed by SJWC are reasonable and should be adopted.
6. DRA's revenue forecast for non-tariff services is reasonable and should be adopted.
7. SJWC's rent expense forecast increased by $329,000 to reflect the cost of leasing the Bascom building is reasonable and should be adopted.
8. SJWC's 3.51% composite depreciation rate based on the Commission Division of Water and Audits' Standard Practice U-4 methodology is reasonable and should be adopted.
9. The Columbine solar project should continue as a pilot solar project in rate base so that SJWC can gather operational performance data to determine whether the pilot project matches expectations and benefits ratepayers.
10. The Cox hydro-turbine project is reasonable and should be adopted because it would directly benefit SJWC and its ratepayers by enabling SJWC to use its own produced energy to run its Cox facilities, and would assist SJWC in providing reliable water service to its ratepayers during peak purchased power demands, curtailments and revolving outages while reducing its purchased power needs.
11. Any power generated at the Alum Rock and Hostetter sites by hydro-turbine units must be sold back to PG&E under a power purchase agreement.
12. Hydro-turbine projects that directly benefit SJWC and its ratepayers in providing quality and reliable water service while reducing its purchased power consumption should be given priority over hydro-turbine projects that do not.
13. The Alum Rock and Hostetter hydro-turbine projects should not be approved at this time.
14. The $209,000 forecasted Montevina Station facilities plan study is reasonable and should be approved.
15. With the Montevina Station project being at an early stage of planning, the remaining project costs should not be approved until a facilities plan study has been completed and a specific project design has been established.
16. SJWC should file a separate application outside of this GRC seeking approval of its project costs and recovery for upgrading its Montevina Station to maintain water quality and to increase its capacity to treat surface water upon completion of a facilities plan study and specific project design.
17. Recycled water has become a viable and reliable alternative to offset potable water demands for irrigation and industrial use as well as for stream flow augmentation, including groundwater recharge.
18. Completion of recycled water mains funding applications does not assure funding, let alone immediate receipt of any approved funds.
19. The recycled water projects are reasonable and should be approved. However, SJWC should not be relieved of seeking partners to share in its reclaimed water projects or of seeking public grants and funding.
20. Any partnership, public grant, and funding that SJWC receives for its water recycled projects should be credited to ratepayers as Contribution in Aid of Construction upon receipt.
21. As part of its next GRC application, SJWC should substantiate the process and results of the process it undertook to obtain partners to share in the costs and to obtain and receive public grant and tax exempt funding for its reclaimed water projects.
22. It is reasonable and appropriate to adopt SJWC's Pipeline Replacement Program for this GRC cycle.
23. DRA's forecast for SJWC's meter replacement program is reasonable and should be adopted.
24. SJWC should provide a written report to the Director of the Division of Water and Audits explaining its 2007 and 2008 small meter backlog and whether that backlog resulted in a General Order 103 violation.
25. SJWC should also address in its written meter report whether our adoption of DRA's meter replacement forecast will preclude SJWC from complying with General Order 103-A.
26. The forecasted service replacement program of SJWC is consistent with the pipeline replacement program being adopted in this proceeding and should be adopted.
27. If SJWC believes that it may have been in violation of General Order 103 because of its backlog meter replacement program or that it may be in violation of General Order 103-A because insufficient funds were approved for its meter replacement program during this GRC cycle, SJWC should file an application to bring it into compliance with General Order 103-A.
28. Floor space should not be the sole criterion for determining whether SJWC should lease instead of purchasing a building. Factors such as building location, safety, security, access for disabled persons, and ability to upgrade the building's systems and infrastructures are necessary attributes to ensure adequate facilities.
29. SJWC's purchase of the Taylor building and all of its related remodeling costs were reasonable and should be included in rate base.
30. The Bascom building purchase price should be excluded from rate base.
31. 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.
32. If sufficient funds are guaranteed to SJWC for the capital improvements necessary for fluoridation plus the costs of the first year's operation, SJWC should be authorized 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. 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. The advice letter should explain why the costs whose recovery is requested are incremental, and not already included in rates.
33. SJWC has reasonably explained that an employee computer error caused the dates of its justification memorandums for Properties #214 and #276 to be updated each time when those memorandums were printed. Section 851 applications should not be required for these properties.
34. SJWC should file a Section 851 application for the review of a single transaction that involved the sale of Property #181.
35. The Summary of Earnings and resulting rates in Appendix A are reasonable and should be adopted.
36. This decision should be effective the date signed
IT IS ORDERED that:
1. The San Jose Water Company and Division of Ratepayer Advocates' partial settlement agreement attached to this decision as Appendix B, that reduced their test year 2010 operating revenue differences to $15,385,000 from $23,685,000 and rate base differences to $46,026,000 from $59,451,000, is adopted. The settled issues include: (1) average annual water sales of 960 hundred cubic feet per business customer; (2) annual purchased water of 3,094 million gallons; (3) establishment of a pension balancing account as detailed in Ordering Paragraph 6; (4) advice letter treatment for the Greenridge Terrace Tank #2 replacements; (5) two new wells at Needles Station; and, (6) retaining a $500,000 cap on the Water Quality Memorandum Account.
2. The San Jose Water Company, Division of Ratepayer Advocates, Mutual Water Companies, and Redwood Estates Services Association's all-party rate design settlement agreement that provided for Mountain District customers to pay the same service charges in effect for all of the utility's remaining customers and the establishment of an Interruptible Service Clause Tariff attached to this decision as Appendix C is adopted.
3. The rate tables and tariff sheets in Appendix A are adopted.
4. San Jose Water Company is authorized to file in accordance with General Order 96-B tariffs containing the 2010 test year increase as provided in Appendix A. The revised rates shall apply to service rendered on and after January 1, 2010 or the tariff's filing effective date, whichever occurs later.
5. On or before November 5, 2010 and November 5, 2011 respectively, San Jose Water Company is authorized to file in accordance with General Order 96-B, a Tier 1 advice letter, with appropriate supporting workpapers, requesting an escalation adjustment for 2011 and 2012, to be calculated in conformance with the Rate Case Plan adopted in Decision 07-05-062 and Appendix A. The advice letters shall be reviewed by the Commission Division of Water and Audits for conformity with this decision, including the applicable provisions of the settlements, and shall go into effect not less than five days notice, not earlier than January 1, 2010 and January 1, 2011, respectively. The tariffs shall be applicable to service rendered on or after the effective date.
6. San Jose Water Company is authorized to establish a pension balancing account, effective January 1, 2010, to record cash contributions to the retirement plan, with San Jose Water Company's recovery of this expense for ratemaking purposes capped at the level of pension expense calculated according to the method prescribed by Statement of Financial Accounting Standards #87 for each concurrent year.
7. San Jose Water Company is authorized to file a Tier 2 advice letter for recovery of costs incurred in its Greenridge Terrace Tank #2 replacement project with a budgetary cap of $2,200,000.
8. San Jose Water Company shall file a separate application outside of its general rate case proceeding seeking approval of project costs and recovery for upgrading its Montevina Station to maintain water quality and to increase its capacity to treat surface water, upon completion of a facilities plan study and specific project design.
9. San Jose Water Company shall substantiate as part of its next general rate case application the process and results of the process it undertook to obtain partners to share in the costs and to obtain and receive public grant and tax exempt funding for its reclaimed water projects.
10. San Jose Water Company shall provide a written report to the Director of the Division of Water and Audits within 90 days after the effective date of this decision that explains its 2007 and 2008 small meter backlog and whether that backlog may have resulted in a General Order 103 violation during that period.
11. If San Jose Water Company believes that it may have violated General Order 103 during 2007 or 2008 or that it may violate General Order 103-A during any year of this general rate case cycle (2009-2012) regarding its meter replacements, San Jose Water Company shall file a new application separate from this proceeding explaining the circumstances of its possible violation or violations and proposing a solution to bring it into conformance with General Order 103-A within 150 days after the effective date of this decision.
12. If sufficient funds are guaranteed to SJWC for the capital improvements necessary for fluoridation plus the costs of the first year's operation, SJWC is authorized 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. This advice letter shall be filed no earlier than 90 days before the end of the first year of operation. The rates requested shall be based on the actual recorded costs of operation, and subject to refund if those costs are found to be unreasonable. The advice letter shall explain why the costs whose recovery is requested are incremental, and not already included in rates.
13. San Jose Water Company is authorized to recover the under-collected balance in its Water Quality Expense Memorandum Account through a one-time surcharge of $0.41 per service.
14. San Jose Water Company is authorized to disburse its over-collected balances in its water rate assistance program, purchased power, purchased water, and pump tax balancing accounts through a 12-month surcredit of $0.0278 per 100 cubic feet.
15. San Jose Water Company shall file a Section 851 application for the sale of its Property #181.
16. Application 09-01-009 is closed.
This order is effective today.
Dated November 20, 2009, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
