c) Cost-benefit Study (Context)
In support of the claim that exempting the Sandhill project from the rate base cap is arbitrary and capricious, Joint Parties argue that the Decision relies "principally on San Gabriel's cost-benefit study to justify approving Sandhill," but that the Decision does not discuss, "the context of this study." (Joint Reh. App., pp. 10 - 11.) Joint Parties itemize a number of factors that they include in their "context" category and imply criticism of the director who conducted the study and San Gabriel's assignment of the task to him. However, Joint Parties do not assert that the director was insufficiently qualified to conduct the study. Joint Parties also imply criticism of basing the study on the San Gabriel engineer's assumptions and not verifying the assumptions or obtaining outside review of the study. The final point identified as context is the fact that the cost/benefit study was prepared after San Gabriel signed contracts for the Sandhill project one week before it submitted the study as part of its GRC application. (Joint Reh. App., pp. 10 - 11.)
Joint Parties suggest that we were required to address these context points in the Decision; although they do not claim, or provide grounds for finding, that there is error in the cost-benefit study or the Decision stemming from any of these factors. (Joint Parties take issue with some of the assumptions used in the study, as discussed in the following section.) The "context" points are not in dispute and the director who conducted the cost-benefit study readily acknowledged their accuracy.14
The witness provided additional context on some points. For example, he testified that, although he had not done a cost/benefit study for an employer since the 1980's, he had done such studies in classes he was teaching. (R.T., vol.4, p. 329 (Dell'Osa/SG.) He also testified that doing the study shortly before the GRC submittal improved the validity of the study with later and more accurate information. (Ex. 20, p. 7 (Dell'Osa/SG).) Joint Parties' context points are not material in determining whether the cost/benefit study provides reliable information. Further, the fact that the Decision does not recount every argument made by parties does not establish that the outcome is arbitrary or capricious. Joint Parties' claim that the exemption to the ratebase cap is arbitrary and capricious because the Decision does not address these items of context related to the cost benefit study, is without merit.
In discussing the "context" information, Joint Parties assert that the Decision relies "principally" on the cost-benefit study to justify the Sandhill project. It should be noted that we discuss a number of factors that support the decision in favor of the project. The cost-benefit study is not the only factor considered in the Decision. For example, the Decision discusses the need for and the advantages of the project and notes that it will permit San Gabriel to make maximum use of Lytle Creek surface water as well as State Water Project water purchased through San Bernardino Valley Municipal Water District while minimizing the cost of power for pumping the water to the point of use. (D.07-04-046, pp. 34 - 39, 117, FOF 38, 39.) On the question of cost effectiveness, the Decision considers the cost-benefit study and provides analysis of various assumptions as well as the sensitivity study. (D.07-04-046, pp. 38 - 41, 118, FOF 42.) As discussed below, there is substantial evidence in the record to support the Decision on these points.
Further, Joint Parties' claim that the Decision "approves" the project is misleading. The Decision finds it reasonable to proceed with the project and exempts it from the rate base cap. However, the revenue increases associated with the project and included in rates via advice letter will be subject to refund pending a reasonableness review in the next GRC. (D.07-04-046, p. 41.)
14 Except, the cross-examination did not address the witness' mathematical error while calculating an answer on the witness stand. (R.T., vol. 4, pp. 329 - 345.)
