5. Settlement Agreement
Suburban and DRA agreed to utilize the Commission's Alterative Dispute Resolution (ADR) program to assist in the facilitation of the settlement discussions. On June 2, 2008, the Chief ALJ assigned ALJ Victor Ryerson as the third-party neutral judge to act as the mediator in this case, and Judge Ryerson commenced a confidential settlement conference with parties in Los Angeles on June 10th. The parties also discussed settlement issues themselves, without Judge Ryerson, at various times prior to the commencement of the EH on June 16th.
5.1. Issues Settled
Suburban and DRA reached agreement on the following issues:
Revenues
Miscellaneous Services; Water Property Rents; Amortization of Deferred Revenues; and, Other Revenues
Rate Base
Deductions from Rate Base:
Depreciation Reserves; Construction Reserves; Contributions in Aid of Construction (CIAC); Unamortized Investment Tax Credits; Accumulated Deferred Taxes, Taxable Advances for Construction; Accumulated Deferred Taxes, Taxable CIAC; Accumulated Deferred Income Taxes; Unamortized Deferred Revenue, Taxable CIAC; Pension Reserve; Accumulated Deferred Income Tax Pension Reserve; and, Timing of Depreciation.
Additions to Rate Base:
Average Utility Plant in Service; Average Construction Work in Progress; and, Average Materials and Supplies.
Suburban Expenses
Employee Pension and Benefits:
Safety/Compliance Training; Other Training/Seminars; Recruiting; 401K Employer Contributions; Employee Pensions; Miscellaneous Pension Plan Charges; Term Life Insurance; Long-term Disability Insurance; Employee Contribution for Medical/Dental Benefits; Employee Welfare and Education; and, Employee Benefits Capitalized.
Administrative/General
Office Supplies and Other Expenses; Property Insurance; Insurance - Injuries and Damages; Regulatory Agency Expenses; CPUC Reimbursement Fee; Outside Services Employed; Miscellaneous General; General Plant Maintenance; Rents; General Overhead; Transportation - Clearing; Tools and Work Equipment; Depreciation; Taxes Other than Income; California Corporation Franchise Tax; and, Federal Income Tax.
Operation and Maintenance
Pumped Water Assessments - Main Basin and Central Basin; Purchased Water; Cooperating Respondent Reimbursement; Maintenance - Well Repairs; Purchased Power; Field Supplies; Building/Plant Supplies; Maintenance of Pumping Equipment; Operation Labor and Expenses; Miscellaneous Expenses; Chemical and Filtering Materials; Maintenance of Water Treatment Equipment; Storage Facilities; Meter Expense; Maintenance of Reservoirs and Tanks; Maintenance of Transmission and Distribution Mains; Maintenance of Services; Maintenance of Meters; Maintenance of Hydrants; Postage; Meter Reading; Customer Records and Collections; Uncollectable Accounts; Water Conservation; and, Capacity Reservation Charges.
Utility Group Expenses
Payroll and Benefits
Regular payroll; Payroll Taxes; Health Insurance; Employee Welfare; Unused Sick-leave; Worker's Compensation; Miscellaneous Pension Plan Charges; 410K Employer Contribution; and, Bonus Accrual.
Administrative/General
Subscriptions; Office Supplies; Printing, Communication, and Telecommunication; Building Utilities; Janitorial Services and Supplies; Machine Rental and Repairs; Rent; Car/Truck Service; Car/Truck Fuel; Car Allowance; Audit and Accounting; Director and Officer Travel and Accident Insurance; and, Miscellaneous Expenses.
Other Expenses
Training and Seminars; Insurance; Deductible Travel and Entertainment; Professional Dues, and, Other Professional Services
Parent Company (Southwest) Expenses
Payroll and Benefits
Health Insurance; Public Company Expenses; Sarbanes/Oxley Act,4 Section 404 Compliance - Testing and Revisions; Director's Fees; Transfer Agent Fees; and, Financial Public Relations
Office Rent and Expenses
Subscriptions; Office Supplies; Telephone, Fax and Voice-mail; Postage; Maintenance and Repairs; and, Relocation Expenses
Administrative and General
Training and Seminars; Executive Conferences; Professional Dues; Other Expenses; Depreciation - General; Bank Charges; Interest - Deferred Compensation; Franchise Taxes; Miscellaneous Expenses.
5.2. Reasonable, Consistent with the Law, and in the Public Interest
We commend the parties for engaging in a worthwhile and meaningful settlement discussion. The many hours spent in analysis, negotiation, and compromise resulted in most of the contentious issues being resolved, and also better identified and clarified the remaining issues subject to hearing.
All settlements must comply with Article 12 of the Rules. Rule 12.1(d) further states that the Commission will not approve any settlement unless it is reasonable in light of the whole record, consistent with the law, and in the public interest.
We find that the settlement is reasonable as it allows Suburban to recover a reasonable amount of increased costs; promotes operational efficiency, infrastructure development, and investment; and, keeps the burden on ratepayers as low as reasonably possible.
We also find that the settlement is consistent with the law. Both parties engaged in settlement discussions voluntarily, and both were represented by counsel. At the parties' request, approval of the settlement will not be construed as an admission or concession of either party regarding any fact or matter of law, or as any statement of precedent or policy for any purpose against Suburban in any other current or future proceedings. Also, as the parties note, the settlement is an integrated agreement, meaning that if we had rejected any part of the agreement, either party would have the right to withdraw from the settlement. Here, we approve the settlement agreement in its entirety.
Lastly, we find that the settlement is in the public interest. The settlement will result in a reduction of Suburban's initial rate increase request, provides for reasonable expenses (in those categories identified in the agreement), and allows Suburban to complete needed capital projects.
In conclusion, we approve the August 1, 2008 settlement agreement between Suburban and DRA (included in Attachment B),5 and find that it complies with all of the provisions of Article 12, including Rule 12.1(d).
4 Sarbanes-Oxley Act of 2002, PL 107-204, 116 Stats. 745.
5 The attached agreement includes minor corrections made after August 1st with the consent of both parties.
