8. Water Industry Rules

We have modified the prior versions of these rules to extend Tier 1 treatment for several types of advice letters that appear suitable for review under Tier 1. Extending Tier 1 to the water industry responds directly to our December 2005 Water Action Plan. The extension also means that both the water and energy divisions will be implementing the Tier 1 concept.

In these rules, we have not authorized an informal general rate case by advice letter (see Water Industry Rule 1.7), but such a procedure is under discussion as the Commission revises its Rate Case Plan for Class A water utilities. If such a procedure is adopted, the Water Industry Rule will be modified.

Other changes are relatively minor and are intended to make these rules easier to use and understand. For example, the terminology and structures now track the General Rules more closely, and there are many more cross-references to the General Rules and, as appropriate, the Commission's Rules of Practice and Procedure and the Public Utilities Code.

Substantively, the new version of the Water Industry Rules clarifies the use of advice letters in two common situations, namely, service extensions into "contiguous" areas, and amortization of under- or over-collections in balancing accounts. Notable among the latter clarifications is that, in making refunds from an over-collected account, a utility will apply a surcredit only to the service charge, thus enabling greater precision in refund calculations and avoiding the disincentive to conserve water that occurs when a surcredit applies to usage. Also, customer notice provisions are clarified, and large (Class A) water utilities are required to publish pending advice letters on their Internet sites.

The California Water Association (CWA), which is a trade association of investor-owned, Commission-regulated water utilities, is the sole commenter on the Water Industry Rules. We have accepted many of CWA's recommendations, notably, the extension of Tier 1 treatment to a large group of water advice letters. We respond below to other CWA comments on the Water Industry Rules.

8.1 "Contracts" (Water Industry Rule 1.5)

Regarding Rule 1.5, defining "Contract," CWA would refer to customers or potential customers rather than developer or customer to delimit the persons with whom the utility enters into contracts. However, we will retain the rule as written, which reflects current practice. For example, main extension contracts now distinguish between developers and customers.

8.2 "Memorandum Account" (Water Industry Rule 1.8)

Regarding Rule 1.8, defining "Memorandum Account," CWA quotes from a Commission resolution, which we believe clarifies the definition. With language added from the resolution, the definition will read:

A deferred charge or credit account that, as described in the Utility's preliminary statement (see General Rule 8.5.3) has been authorized by the Commission; however, deferred charges or credits shown in the Memorandum Account may be recovered in rates only after a request by the Utility, a showing of their reasonableness, and approval by the Commission.

8.3 "Other Required Notice" (Water Industry Rule 3.3)

Regarding Rule 3.2, "Other Required Notice," CWA commented that not all Class A water utilities had Internet sites. Since CWA filed its comments, our requirements for Internet publication of utility tariffs (including those of large water utilities) have become effective. (See D.01-07-026.) Thus, there is no longer any impediment to water utilities using their Internet sites to publish notices and advice letters pursuant to this rule. CWA's comment is moot.

Rules 4.2 and 4.4 contain requirements specific to serving advice letters relating to a proposed service area extension (Rule 4.2) or withdrawal or withholding of service (Rule 4.4); these requirements are incremental to the generic requirements set forth in Rule 4.1 for all water advice letters. CWA recommends deleting Rules 4.2 and 4.4 and addressing them as needed in Standard Practices. However, we will retain Rules 4.2 and 4.4 as written. Proposals to extend service areas or to withdraw or withhold service, if approved, may significantly affect owners of real property in the subject area. Thus, we find reasonable a requirement to serve these owners with advice letters making these proposals. Also, Rule 4.2 requires that an advice letter for service area extension be served on the Local Agency Formation Commission for each county in which service will be extended, as well as each local fire protection agency and subdivision-permitting agency within the subject area. This requirement is consistent with our policy in the Water Action Plan to promote better coordination with local planning efforts.

The rules in this section identify the appropriate tier for water-related advice letters.

Regarding acquisition of a mutual or municipal water company, we agree with CWA that approval of post-acquisition rates is appropriately delegated to staff (see D.99-10-064). We will include this type of advice letter in Tier 2.

We also agree with CWA's proposal for advice letters related to
non-tariffed investments by a water utility. In D.00-07-018, we created a procedure whereby a utility could establish new non-tariffed business activities and also could re-categorize as an "active" activity one that was currently categorized as "passive." CWA recommends that establishment or re-categorization be subject to approval by Commission resolution. We will add this to our list of Tier 3 advice letters.

CWA would like rate base offsets to be included among the ministerial (Tier 2) advice letters, instead of Tier 3 advice letters requiring Commission review and disposition. We believe Tier 3 is the right place for these advice letters. Our experience shows that the requirement of prior Commission approval for a Class A water utility to file a rate base offset does not moot concerns over timing, size, and complexity that frequently arise after project completion. Commission review by way of Tier 3 advice letters enables an appropriate degree of scrutiny.

Rule 6 requires advice letter changes to be made by "supplements" served on all parties. CWA would like to continue to use "slip sheets," which traditionally were not served on all parties, to make what the utility deems to be minor non-substantive changes. Given modern communication technology, we believe strongly that everyone involved in the process should have the correct version of the utility's advice letter. Overwhelmingly, people are accepting service by e-mail, so the incremental burden on the utility of serving corrections (whether they are termed supplements or slip sheets) is modest. We will retain the rule.

Regarding Rule 8.1, "Service Extension into Contiguous or Other Area," we have modified the rule as suggested by CWA such that the acquiring utility need not already have an adequate supply to serve the area, provided the utility can show it has a plan to develop such a supply.

CWA recommends deleting Rules 8.4 and 8.5, which set forth criteria for filing expense and balancing account offsets. We disagree. These are among the most important and most frequent subjects for water advice letters, and we have made both types of offset subject to staff disposition. Under these circumstances, clarity on how and when such advice letters should be used will benefit everyone. We will retain these rules with some modifications as noted in Section 9 of this Decision.

A new rule has been added to require water utilities to prepare digital maps of their service areas. A common geographic information system format is specified, and the Water Division will provide detailed specifications and adopt a compliance schedule so that all water utilities have submitted digital maps to the Water Division and the appropriate Local Agency Formation Commission (LAFCO) no later than December 31, 2008. This requirement is adopted to assist both the Commission and the LAFCOs in providing efficient utility services to the public.

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