16. Assignment of Proceeding
Catherine J.K. Sandoval is the assigned Commissioner and Douglas Long is the assigned ALJ in this proceeding.
1. Suburban is a class A water company subject to the Commission's jurisdiction.
2. There is an adequate record composed of all filed and served documents.
3. The proposed settlement is a balance between the positions as otherwise litigated in the prepared testimony of Suburban and DRA.
4. Ratemaking practice uses the current year state tax expense as a federal income tax deduction in the current year.
5. Suburban presented inconsistent data on state taxes.
6. The DRA 2011 state tax estimate is inconsistent with current practices.
7. The state tax estimate used to calculate the test year federal tax expense is the current year's expense.
8. Suburban is eligible as a stand-alone tax payer for a federal deduction pursuant to the American jobs Creation Act of 2004.
9. A stand-alone federal income tax allowances is the standard ratemaking treatment in California.
10. Suburban's parent is ineligible for the deduction when it files a consolidated return.
11. Under Suburban's approach, California ratepayers would have the disadvantages but none of the advantages of treating Suburban's tax expenses on a consolidated basis.
12. The Commission has consistently amortized Suburban's prior regulatory costs in general rate cases and has not forecast regulatory cost for the test period.
13. Forecasting regulatory costs for test year 2012 and forward would leave prior costs unrecovered unless there was also a catch-up amortization.
14. There is not a reliable forecast in the record for 2012 regulatory costs.
15. The Commission generally uses a four-factor mechanism to allocate indirect costs when there is not a more applicable method for direct allocation.
16. Suburban used inconsistent data for the number of customers for unaffiliated entities served by Suburban's parent company. Suburban counted each unaffiliated customer as a single customer whereas it counted itself as over 75,000 customers.
17. Suburban used inconsistent data for gross plant for unaffiliated entities served by Suburban's parent company.
18. The data for gross operating expenses and payroll appear to be consistent for all entities.
19. The four-factor allocation for only the Utility Group uses consistent data.
20. Suburban and DRA had an acrimonious relationship in this proceeding.
21. There were work paper deficiencies that added to DRA's workload and delayed its analysis. Suburban had many "hard wired" pieces of data in its spreadsheets.
22. DRA has authority to review and audit any and all costs requested by Suburban, including direct and indirect affiliate costs.
23. The Commission's Affiliate Transactions Rule VIII.E requires biennial audits beginning in 2013.
1. Applicant bears the burden of proof to show that the request is reasonable.
2. The proposed settlement is reasonable in light of the whole record, consistent with law, and in the public interest, therefore the Commission may adopt it.
3. The Commission has the discretion and authority to resolve issues which were not addressed in the settlement.
4. It is reasonable to use the 2012 estimate of state taxes as a deduction for 2012 federal income taxes.
5. It is reasonable to calculate Suburban's federal income tax allowance on a stand alone basis and include the deduction pursuant to the American Jobs Creation Act of 2004.
6. It is reasonable to continue to amortize prior regulatory costs because there would be a gap in recovery without a catch-up adjustment and there is not a reliable forecast in the record for 2012 regulatory costs.
7. It is not reasonable to allocate costs using the number of customers as an allocation factor when Suburban counts its 75,000 customers but then counts unaffiliated entities served by Suburban's parent company as a single customer each.
8. It is not reasonable to use inconsistent data for gross plant as an allocation factor.
9. It is reasonable this time to use only two factors, gross operating expense and payroll, to allocate costs to all entities including the unaffiliated entities because only that data is consistent for all entities.
10. The utility group four-factor allocation is reasonable because it uses consistent data, excluding the inconsistent data for unaffiliated entities served by Suburban's parent company.
11. No behavior by Suburban during this proceeding warrants a fine.
12. It is not necessary to order any additional audit of Suburban or its parent company.
13. Pub. Utility Code § 455.2 permits the creation of an Interim Rates Memorandum Account to track the difference between the rates in effect before this decision and the final rates adopted herein.
14. This decision should be effective today.
15. This proceeding should be closed.
IT IS ORDERED that:
1. The proposed test year 2012 ratemaking settlement (Attachment A) between Suburban Water Systems and the Division of Ratepayer Advocates is adopted.
2. The adopted test year revenue requirement for Suburban Water Systems (Suburban) was calculated using:
a. The results of the proposed settlement (Attachment A) between Suburban and the Division of Ratepayer Advocates;
b. The 2012 estimate of State taxes as a 2012 federal tax deduction;
c. the federal income tax allowance on a stand-alone basis and include the deduction pursuant to the American jobs Creation Act of 2004;
d. The amortization of prior regulatory costs and not a forward forecast;
e. A two-factor allocation rate of 15.85% to Suburban for general cost allocation to affiliated companies and other unaffiliated entities served by Suburban's parent company; and
f. A four-factor allocation of 50.9% to Suburban for general and cost allocation to the Utility Group of affiliated companies.
3. Suburban Water Systems must file a Tier 1 advice letter within 14 days of this decision to implement the rates and charges adopted herein.
4. Suburban Water Systems (Suburban) must cease tracking the difference between the rates in effect before this decision and the final rates adopted herein upon implementation of the rates adopted in Ordering Paragraph 1. Suburban must file a Tier 1 advice letter to amortize the balance in the Interim Rates Memorandum Account. The account shall remain in effect until the balance is fully amortized.
5. Suburban Water Systems must timely file Tier 1 advice letters in conformance with General Order 96-B proposing new revenue requirements and corresponding revised tariff schedules for post-test year rates effective on January 1, 2013 and January 2014 as set forth in the Commission's Rate Case Plan (Decision 07-05-062) for Class A Water Utilities and shall include appropriate supporting work papers. These filings must also comport with and comply with the settlement as adopted in Ordering Paragraph 1 of this decision and effect of the outcomes adopted in Ordering Paragraph 2 of this decision.
6. Suburban Water Systems must include as an option in its next general rate case a detailed proposal, as described in this decision, to catch-up amortization of prior regulatory costs and transition to a test year forecast.
7. Suburban Water Systems must include and use in its next general rate case an indirect cost allocation method with verifiable and consistent data for all entities that receive an allocation of indirect costs.
8. Suburban Water Systems (Suburban) must avoid all possible usage of hard wired data in work papers for its next general rate case and all other applications or advice letters, and it must also distinguish or highlight all unavoidable hard wired data. Suburban's work papers must include sufficient descriptions and explanations to allow the Commission's Division of Ratepayer Advocates and Division of Water and Audits to readily follow the organization and method Suburban employs to develop the work papers.
9. Application 11-02-002 is closed.
This order is effective today.
Dated April 19, 2012, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
MICHEL PETER FLORIO
CATHERINE J.K. SANDOVAL
MARK J. FERRON
Commissioners
