COM/JB2/jt2 Date of Issuance October 26, 2007
Decision 07-10-034 October 18, 2007
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
In the Matter of the Application of Golden State Water Company (U133W) for an order authorizing it to increase rates for water service by $14,926,200 or 15.77% in 2007; by $4,746,000 or 4.31% in 2008; and by $6,909,300 in 2009 in its Region II Service Area. |
Application 06-02-023 (Filed February 14, 2006) |
(See Attachment D for List of Appearances)
OPINION GRANTING RATE INCREASES FOR THE REGION II
SERVICE AREA AND GENERAL OFFICE OPERATIONS
OF GOLDEN STATE WATER COMPANY
OPINION GRANTING RATE INCREASES FOR THE REGION II
SERVICE AREA AND GENERAL OFFICE OPERATIONS OF
GOLDEN STATE WATER COMPANY 11
3. The Provisions of the August 4, 2006 Settlement Stipulation
Between DRA and GSWC are Reasonable and Should Be Accepted 55
4. The Cost Allocation Studies Submitted by Both GSWC and
DRA Contain Significant Flaws, So a Study Developed by
the Commission Will Have To Be Used 1111
4.1. Overview of GSWC's Position on Cost Allocation 1111
4.2. Overview of DRA's Position on Cost Allocation Issues 1414
4.3.1. DRA's Proposed Reduction of the General Office
Revenue Requirement by $2.96 Million Annually
to Account for "Missed Allocations" is Unjustified 1616
4.3.2. DRA's Proposal to Allocate About 30% of GSWC's General Office Costs to the Company's Affiliates is Unreasonable 2121
4.3.3. DRA's Application of the Four-Factor Methodology
is Too Quixotic and Unexplained to Justify Acceptance
of its Cost Allocation Proposals 2323
4.3.4. GSWC Has Not Shown That the Use of Single Factors
to Allocate Nearly Half of GSWC's General Office
Revenue Requirement is Justified 2626
4.3.5. As an Interim Expedient, GSWC Will Be Required to
Use a Three-Factor Formula Based on Total Expenses,
Total Labor and a Weighted Number of Customers 3434
5. GSWC's Request for a New Customer Information/Customer
Relationship Management (CIS/CRM) System is Reasonable,
But the Amount Requested is Unsupported and Will Need To
Be Established by a Tier 3 Advice Letter 4444
5.1. GSWC's Rationale for Replacement of the Existing CIS System 4545
5.2. DRA's Opposition to Including the Costs of the New
CIS/CRM System in this Rate Case 4949
6. The 20 New General Office Positions GSWC is Requesting
for Reasons Other Than Compliance With the Sarbanes-Oxley Act 5555
6.1. Procedural Background of Motion to Strike 5757
6.2. The Testimony of GSWC and DRA Concerning the
Disputed General Office Positions Not Related to SOX 5858
6.2.1. The 11 Factors That GSWC Claims Have Significantly
Increased the General Office Workload 5959
6.2.2. Senior Vice President-Operations 6363
6.2.3. Capital Projects Manager-Operations 7070
6.2.4. Administrative Support Analyst - Operations 7474
6.2.5. Assistant Application Support Analyst - Operations 7575
6.2.6. General Clerk - Information Technology 7777
6.2.7. Assistant Information Technology Manager - Information Technology 7979
6.2.8. New System Administrator-Developer - Customer Service 8181
6.2.9. Three New Customer Service Representatives 8282
6.2.10. Call Center Support Analyst 8484
6.2.11. Applications Support Manager - Applications Support 8686
6.2.12. Corporate Communications Manager and Communications, Media and Technical Generalist 8989
6.2.13. DRA's Attack on the Employee Development
University (EDU) and GSWC's Request for Three
More EDU Positions 9393
6.2.14. New EDU Positions Requested by GSWC 105105
6.2.15. Associate Rate Analyst 108108
6.2.16. EPRP Coordinator 109109
6.3. A $50,000 Penalty is Appropriate for GSWC's Failure to
Disclose Until Rebuttal Testimony the Rationale for
Requesting at Least Half of the 20 New General Office Positions 111111
7. General Office Positions Requested by GSWC
Due to the Sarbanes-Oxley Act 122122
7.1. GSWC's General Stance on New Positions Required for
SOX Compliance 124124
8. DRA's Challenge to General Office Positions At Issue in A.02-11-007 140140
9. Most of the Miscellaneous Disputed Issues Between GSWC
and DRA Should Be Resolved in Favor of the Company 146146
9.1. Miscellaneous General Office Expenses Including Dues to Trade Organizations 146146
9.2. General Office Rent 147147
9.4. Injury, Damage and Property Insurance 150150
9.5. Sales per Commercial Class Customer in Region II 152152
9.6. Dividend Equivalent Rights 156156
9.7. Annual Incentive Bonuses 159159
10. Categorization and Need for Hearing 163163
11. Comments on Proposed Decision 164164
12. Assignment of Proceeding 164164
Attachment A - August 4, 2006 Joint Motion of DRA and GSWC to Adopt Stipulation, with appendices
Appendix A - Comparative Summary of Earnings
Appendix B - Golden State Water Company Capital
Budgets Region II
Appendix C - Golden State Water Company General Office Capital Budgets
Attachment B - Tables 1, 2, and 3 Setting Forth Computations for Adopted Cost Allocation Methodology
Attachment C - Rate Tables
Attachment D - List of Appearances
OPINION GRANTING RATE INCREASES FOR THE REGION II
SERVICE AREA AND GENERAL OFFICE OPERATIONS
OF GOLDEN STATE WATER COMPANY
In this decision we resolve two rate cases filed by Golden State Water Company (GSWC), which was formerly known as Southern California Water Company. The first case concerns GSWC's Region II, which serves a number of cities and unincorporated areas in Los Angeles County.1 Virtually all of the issues concerning Region II rates were resolved in a stipulation that GSWC and the Commission's Division of Ratepayer Advocates (DRA) submitted on August 4, 2006. As part of this decision, we approve all but one of the terms of this stipulation.
The second rate case concerns GSWC's general office, which is located in San Dimas, California and provides support services to all three of GSWC's California regions. Despite lengthy negotiations, GSWC and DRA were unable to resolve their differences over the amount of the rate increase appropriate for GSWC's general office. Two of the largest issues with respect to the general office rate case are (1) the percentage of general office costs that should be allocated to the three regions versus GSWC's unregulated affiliates, and (2) the number and types of new personnel positions that should be authorized for GSWC's general office. Eight days of hearings were held concerning the general office issues, and in this decision we resolve them.
As a result of our decision, GSWC will be authorized a rate increase for its Region II operations of $6,654,600, or 7.04%, in 2007, $4,613,800, or 4.54%, in 2008, and $4,249,600, or 4% in 2009. In addition, we determine that general office costs that cannot be charged directly should be allocated as follows among GSWC and it affiliates not regulated by this Commission: GSWC 91.5%, Chaparral City Water Company (CCWC) 2.8%, American States Utility Services (ASUS) 5.6%.
GSWC filed the instant application in mid- February 2006. Even before the protest period had run, a discovery dispute arose between GSWC and DRA, which caused the latter to file, on March 17, 2006, a motion to compel responses to some of DRA's data requests. DRA also filed a protest on March 30, 2006.
Because of the parties' scheduling constraints, a prehearing conference (PHC) could not be held until May 2, 2006. At the PHC, the parties proposed essentially equivalent schedules based on the Rate Case Plan adopted in Decision (D.) 04-06-018. After some discussion with the Administrative Law Judge (ALJ), the following schedule for testimony and hearings was agreed to:
Action Date
DRA files responsive testimony May 25, 2006
GSWC files rebuttal testimony June 9, 2006
Hearings held June 26-30, 2006
The parties submitted their testimony on the dates indicated. However, DRA expressed concern because of the very large volume of rebuttal testimony that GSWC served, and - as described below - DRA filed a motion to strike all of one witness's rebuttal testimony and portions of another witness's on June 28, 2006, during the first week of hearings.
Prior to commencement of the hearings, two public participation hearings (PPHs) were also held. The first was held on June 21, 2006, in Placentia, which is one of the communities GSWC serves in Orange County. The second PPH was held in the City of Gardena, which is located in Los Angeles County, on June 22, 2006. Both PPHs were well-attended, and many of the people attending them asked for and were granted an opportunity to speak.
On June 14, 2006, the City of Claremont, California (Claremont) filed a petition to intervene in the proceeding. Neither GSWC nor DRA opposed the petition, and the ALJ granted it on the first day of hearings. Claremont's attorney made clear, however, that his client's participation in the proceeding would be limited to the filing of briefs.
Although hearings began as scheduled on June 26, 2006, they were not concluded within the five days originally allotted for them, and additional hearings were held on July 6, 11 and 12, 2006. Pursuant to a schedule worked out on the last day of hearings (and subsequently extended at the requests of both DRA and GSWC), all parties filed opening briefs on August 10, 2006, and reply briefs on August 30, 2006.
A "true-up" hearing to answer any questions the ALJ might have about the August 4, 2006 stipulation between DRA and GSWC was scheduled for September 11-12, 2006, but was canceled due to a death in the ALJ's family.
Owing to the slower-than-expected pace of decision writing brought about by this family death and other matters, on December 14, 2006, we issued D.06-12-017, which granted interim rate relief to GSWC pursuant to the terms of Pub. Util. Code § 455.2. The interim rate relief for GSWC was made effective on January 1, 2007, and the decision provided that the interim increase would be subject to refund, and could be adjusted upward or downward back to January 1, 2007, consistently with the final rates adopted by the Commission.
3. The Provisions of the August 4, 2006 Settlement Stipulation Between DRA and GSWC are Reasonable and Should Be Accepted
Although GSWC and DRA strongly disagree on many issues relating to the company's general office operations, they did reach a settlement as to some, and they also agreed on a settlement of the large majority of issues between them relating to Region II. We have examined this stipulation in detail, and except for the allocation factor agreement in Paragraph 5.10, we accept the stipulation's provisions as a reasonable compromise of the parties' positions.
Pursuant to the schedule agreed upon at the last day of hearings, the parties' stipulation was served on all parties and the ALJ on August 4, 2006. The stipulation is appended to this decision as Attachment A. The actual stipulation itself comprises 26 pages and contains many subparagraphs, to which we will refer below.
Also attached to the stipulation are Appendices A, B and C. Appendix A is a so-called "reconciliation exhibit," summarizing the differences between GSWC's position and DRA's for the three years covered by this rate case. Appendix B sets forth the agreed-upon capital budgets for each CSA in GSWC's Region II for 2006, 2007 and 2008. Appendix C sets forth the capital budget items for these same years as to which the parties were able to agree for GSWC's general office. However, as the stipulation notes, many of the items in Appendix C are marked "TBD" (i.e., to be determined), because GSWC and DRA could not reach agreement and await our decision on the disputed items.
In the paragraphs below, we discuss some of the more significant provisions of the settlement stipulation.
Cost of Capital - On this important item, DRA favored a return on equity (ROE) of 9.68%, while GSWC argued for an ROE of 11.2%. In ¶ 10.01, the parties agreed the ROE should be 10.1%. The parties agreed that the cost of debt should be 7.46%, and that GSWC's capital structure should consist of 49.2% debt and 50.8% equity. (¶¶ 0.02 & 10.03.) Using all these figures, the parties agree that the return on ratebase will be 8.80%. (¶ 10.04.)
1 GSWC has divided Region II into four "customer service areas," or CSAs. About 50,000 customers in Carson, Lawndale, Gardena, Hawthorne, Inglewood, Torrance and portions of Compton are served by GSWC's Southwest CSA (which also serves unincorporated areas including Athens, El Camino Village, Lennox and Liberty Acres). The entire community of Culver City is served by the Culver City CSA, where GSWC has about 9,300 connections.
About 19,600 customers in Artesia, Norwalk, Hawaiian Gardens, Downey and portions of Cerritos, South Gate and Lakewood receive service from GSWC's Central Basin East CSA. In addition, approximately 19,200 customers in Bell, Bell Gardens, Cudahay, Florence, Graham, Willowbrook and Hollydale are served by GSWC's Central Basin West CSA.
