Discussion
The conservation rate design Pilot Program has been structured to result in reduced water consumption while generating sufficient sales revenue to meet the revenue requirement. This is reflected in the proposed balancing account recovery and refund procedures, which have an annual review, with a 2.5% annual revenue requirement threshold.
As a safeguard, the parties have also agreed to a provision in the settlement that would allow for a review and correction if the impacts of the WRAM and MCBA mechanisms produce a disparate impact on ratepayers or shareholders. This provision is found in Section III.3 of the settlements and provides that the parties will meet and discuss adjustments. We find that following this meeting, the parties should individually or jointly file a petition to modify this decision. Since Cal Am will be tracking sales levels by customer class, any disparate impact will be readily apparent and can be quickly addressed.
Given the expected modest balancing account impacts, the safeguards discussed above, and the limited time period of the Pilot Program, we find it reasonable to adopt the proposed WRAM and MCBA mechanisms. We expect that the usage information collected and evaluated during the Pilot Program will allow a conservation focused mechanism to be considered in the next GRC filing.
In D.07-08-030, the Commission stated that the return on equity should be examined in a generic proceeding for all water utilities (I.07-01-022). In August 2008, the Commission issued a decision in Phase 1b of I.07-01-022 moving consideration of the return on equity into the cost of capital proceeding (I.08-05-003, 004, 005).12 The settlements in this proceeding were filed before the decision in Phase 1b of I.07-01-022, but before the Commission had time to thoroughly review the settlements and issue a decision. For analysis purposes, we substitute the new proceeding number A.08-05-003, in our discussion of the settlements' provisions for adjustment to the return on equity.
In the settlements, parties included a procedural process for consideration of a return on equity adjustment for the WRAM.13 The settlements provide that if, in A.08-05-003, the Commission adopts a generic basis point adjustment to return on equity for water utilities that have WRAM and MCBA mechanisms similar to those approved for California Water Service Company and Park Water Company in D.08-02-036, then the same generic return on equity adjustment should be applied to the WRAM and MCBA adopted here. Further, the return on equity adjustment should be applied here when conservation rates are implemented. If the return on equity adjustment decision in A.08-05-003 is made after the WRAM and MCBA is implemented for the districts in this proceeding, then the balancing accounts would be subject to true-up to the date of implementation.
The settlement also provides that if the Commission issues a decision regarding a return on equity adjustment in A.08-05-003 that is not consistent with the generic adjustment described in the settlements, the parties will meet to discuss how that decision should affect this Pilot Program.
Consistent with D.08-06-002, we find that more specificity is required regarding the procedural process in the event a Commission decision in A.08-05-003 does not resolve the return on equity adjustment issue for the Coronado, Village and Larkfield districts. Therefore, we direct that if the generic return on equity adjustment described in the settlement is not adopted in A.08-05-003, parties should meet and confer within 30 days and then file a petition to modify this decision within 15 days after the meeting. The petition to modify may be filed jointly or separately, proposing a procedural forum and process to address a return on equity adjustment. The WRAM and MCBA balancing accounts adopted here will be subject to true-up to the date a final decision on a return on equity adjustment is made.
The settlements provide that Cal Am will track data, such as billing and usage data by meter size, by month, and by class of customer, for use in analyzing customer response to the proposed conservation rates so that it is readily available to the Commission and the Parties to evaluate the results of this Pilot Program.14 To ensure an effective Pilot Program, we also direct Cal Am to schedule a meeting every four to six months with all parties to discuss the customer response data it is tracking and whether there should be any changes in its conservation programs in response to the results.
With data tracking and analysis and the additional requirement of a regular meeting between the parties, we find the monitoring and data collection proposed by the parties to be reasonable.
3.3. Action on Proposed Settlement
Based on our review of the terms of the proposed settlement, we find each section to be reasonable in light of the whole record. In reviewing specific terms, we have included further direction to the parties for the review of this Pilot Program in the next GRC filing. We find that with these additions, the settlement is reasonable in light of the whole record, consistent with the law, and in the public interest. Therefore, we should adopt the settlement.
12 The cost of capital proceeding for Cal Am is A.08-05-003.
13 For the Coronado and Village districts, the terms are in Section XI of the Settlement - Appendix A to this decision. For the Larkfield District, the terms are in Section XIII of the Settlement - Appendix B to this decision.
14 For Coronado and Village the provisions are found in Section X. For Larkfield, the provisions are found in Section XII.
