a) Joint Parties' Policy Arguments
Joint Parties dispute, on policy grounds, the exemption of the Sandhill project from the 10% rate base cap. They argue that it is arbitrary to have a cap and then to permit an exemption "that represents up to half of pre-existing rate base." (Joint Reh. App., p. 8.) They also argue that the concept of a cap is to "give discretion and impose restraint on managerial decision-making," but that in the case of the Sandhill Project, "the exception swallows up the rule and undermines that rationale." (Joint Reh. App., pp. 8, 14.) Joint Parties do not provide authority, or other specific grounds for these policy statements.13
The Decision reviews the purpose and need for the project, including a thorough account of the available water supply and the technical water quality issues related to the current plant and the Sandhill upgrade project. (D.07-04-046, pp. 34 - 38.) We concluded, "[w]e find the Sandhill treatment facility to be needed and building it is reasonable." (D.07-04-046, p. 40.) The Decision says the most difficult issue regarding the Sandhill project is how the costs should be passed into rates. We explained the basis for exempting the Sandhill Project from the rate base cap, saying:
. . . [W]e exempt the ratebase increases caused by investment in the Sandhill facilities from this cap. We do this because this investment is a large single investment that will necessarily go into ratebase over multiple years.
(D.07-04-046, pp. 40 - 41.) Joint Parties' argue that the project's size should preclude granting an exemption from the rate cap. We found, to the contrary, the size of the project (along with the fact that it will go into rate base over multiple years) was the reason to exempt it from the cap. Joint Parties disagree with our conclusion; however, disagreement with the outcome does not establish that it is arbitrary.
The Decision explains the issues related to the Sandhill project and the reasons for exempting the project from the rate base cap. Exempting the project from the cap is a policy determination appropriate for exercise of the Commission's discretion. For these reasons, the claims of arbitrariness are without merit.
13 However, Joint Parties explain the underlying math by which they reach the "up to half" conclusion. (Joint Reh. App., p. 8, fn. 1.)
