9. Selection of Alternatives

SJWC asserts that its analysis shows the cost of Alternative 2 is lower than either Alternative 1 or the Base Case.¹⁰⁹ SJWC also contends that purchasing facilities under Alternative 2 is preferable to leasing facilities because SJWC will own the asset at the end of the term.

DRA contends that, based on its DCF analysis, the Base Case (remodeling the Main Office and leasing additional space at 1265 South Bascom Avenue) is the least cost option and is in the best interests of ratepayers.¹¹⁰ DRA also contends that the proposal to purchase the building at 1265 South Bascom Avenue under Alternative 2 is more costly than leasing additional space at that location.

Discussion

As discussed above, implementing the Base Case will not result in adequate facilities. An alternative that may cost less but which results in inadequate, inefficient facilities is not in the best interests of ratepayers and should not be implemented. Only Alternatives 1 and 2 are reasonable options because either will provide adequate facilities. However, Alternative 1 results in a lower revenue requirement.

Although SJWC requests an increase in the revenue requirement for 2007, the Proposed Transaction and replacement of the Main Office will not be completed before late 2008 at the earliest.

We recognize that SJWC has already purchased the Replacement Facility and 1265 South Bascom Avenue. As discussed below, SJWC does not need Commission approval to purchase property. However, if SJWC chooses to purchase property for public utility use before the Commission approves recovery of the costs in connection with the purchase, it does so at its own risk. In this case, we find that the cost of leasing replacement facilities is less than the cost of purchasing them. Approving the lower revenue requirement for comparable alternatives is in the best interests of ratepayers.

SJWC requests that it be authorized to include in its rate base $3.795 million of the purchase of 110 West Taylor Street and $4.3 million for the purchase of 1265 South Bascom Avenue. SJWC's request is untimely because the Application does not request that it be authorized to include any capital costs in rate base, and SJWC's first request for this authority is made in its comments on the PD.

The Scoping memo states that the proceeding will not decide whether SJWC may buy or lease facilities, but only whether costs associated with the transaction should be included in rate base or rates.¹¹¹ Because the PD authorizes a revenue requirement that is based on the cost of leasing (not purchasing) facilities, a decision on whether SJWC should be authorized to include in rate base some or all of the costs for the purchase of 110 West Taylor Street or the purchase of 1265 South Bascom Avenue should be deferred to SJWC's next GRC. 

However, we will authorize SJWC to establish a memorandum account to track interim depreciation and other expenses, such as taxes, for retroactive recovery.

¹⁰⁹ Exh. SJWC-1, Stein - p. 3.

¹¹⁰ DRA Opening Brief, pp. 1,-2, 5, 10-11.

¹¹¹ Scoping Memo, Footnote 4, p. 4.