7. Rate Case Expense

Reasonable costs are allowable in rates for Suburban to participate in general rate cases and other regulatory proceedings. At dispute in this proceeding is whether to allow the amortization of actual prior years' regulatory costs or a forecast of regulatory costs to be incurred in the test year and subsequent years. We find it is reasonable to continue the current practice to amortize actual prior years' regulatory costs because we would otherwise have to "catch up" for the unamortized years as well as include a future forecast in rates to avoid a gap in Suburban's recovery of reasonable costs. We therefore also direct Suburban to present a catch-up option in the next rate case which, if adopted then, would convert to a forecast rather than an amortization.

Suburban cites to the consistent history for the Commission's practice for Class A water companies to amortize actual prior years' regulatory costs and not adopt a forecast of regulatory costs to be incurred in the test year and subsequent years. (Sub Opening Brief at 10 - 13.)

DRA argues that the Commission as a matter of policy sets rates, including the component for regulatory expense, on a prospective basis and thus does not amortize prior years' actual costs in a current rate case to be recovered over the test year and subsequent years. DRA argues with cites to other general rate case decisions for other utilities that the Commission adopts a forecast for regulatory expenses rather than amortizing actual prior years' regulatory costs.

Unfortunately, our last rate case decision for Suburban is not dispositive on how its regulatory expenses were included in rates. In fact regulatory expenses appear only once in the entire decision, D.09-03-007, as a line item in the settlement's summary of earnings. It shows that DRA and Suburban proposed the same amount and the settlement used that amount for regulatory expense. We cannot test here what DRA did or did not understand in the last rate case, nor do we ever rely on prior settlements. But we see no Suburban-related decision, D.09-03-007 or any other citation, which shifts Suburban from an amortization to a forecast method. It appears that amortizing Suburban's prior costs, to be consistent with prior practice, is the most reasonable option today. DRA has not objected to the recorded costs as unreasonable: it only proposes to change to a forward forecast.

There are good reasons to use a forecast because, for example, it provides a limit on costs or at least an incentive to control costs, whereas amortizing prior costs provides little or no incentive for Suburban to control costs. We have no reliable and complete test year 2012 forecast from Suburban nor is DRA's proposal a complete proposal to catch-up on amortization and move to a forward looking forecast.

We will adopt Suburban's proposal that we should amortize prior regulatory costs as the most reasonable proposal currently before us. We direct Suburban in its next rate case to present 10-years of actual data and, in addition to whatever proposal it prefers, to also present a three year forecast for the next rate case cycle as well as a catch-up adjustment to shift from amortization to a forward forecast. We therefore adopt the following allowance for amortization:

2011 general rate case costs: $512,865

2009 cost of capital costs: 62,494

Total for amortization $575,359

Annual (divided by 3) $191,787

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