2. Jurisdiction and Background
Applicant Great Oaks Water Company (Great Oaks) is a public utility subject to the jurisdiction of this Commission as defined in Section 218 of the Public Utilities Code.1 Applicant seeks adoption of a base year 2010 cost of capital which will apply to all of its California-jurisdictional operations.
Great Oaks was required by Decision (D.) 07-05-062 to file this application concurrently with cost-of-capital applications filed by San Jose Water Company (San Jose), Valencia Water Company (Valencia), Park Water Company and its affiliate Apple Valley Ranchos Water Company (Park/Apple), San Gabriel Valley Water Company (San Gabriel), and Suburban Water Systems (Suburban). This group of companies is the single-district Class A water utilities in California. On May 1, 2009, San Jose filed A.09-05-001, Valencia filed A.09-05-002, Park/Apple filed A.09-05-003, San Gabriel filed A.09-05-004, and Suburban filed A.09-05-005. On May 4, 2009, Great Oaks filed A.09-05-007.
On June 9, 2009, the Commission held a duly noticed prehearing conference (PHC) before the assigned judge in the multiple cost of capital applications to determine parties, create the service list, identify issues, consider the schedule, and address other matters as necessary to proceed with the applications. The assigned Commissioner consolidated the five applications pursuant to Rule 7.4, excluding Great Oaks' A.09-05-007. The assigned Commissioner's scoping ruling stated that because Great Oaks is the smallest of the Class A water companies, its operational and financial risks may2 be readily distinguished from the other larger companies. At the request of Great Oaks, we delayed litigating the cost of capital to coincide with litigating the general rate case, A.09-09-001. Further, the ruling also held that regardless of whether Great Oaks filed a general rate case in 2009, this application (A.09-05-007) would be processed to adopt a fair and reasonable 2010 base year cost of capital; the appropriate capital structure, embedded costs of debt and other non-equity securities; and a just and reasonable return on equity, i.e., there would be a cost of capital proceeding even if there was no general rate case. (June 23, 2009 Scoping Memo at 1-4.)
Great Oaks filed its anticipated general rate case, A.09-09-001, on September 1, 2009, pursuant to the Commission's rate case plan D.07-05-062, (which also required Great Oaks to file this application, A.09-05-007, for its cost of capital). In an updated scoping memo dated November 4, 2009, the assigned Commissioner held he would not consolidate A.09-05-007 with the general rate case, A.09-09-001, but would coordinate the two schedules to minimize any burden on either Great Oaks or the Division of Ratepayer Advocates (DRA). A separate scoping memo and ruling was issued in A.09-01-001. Therefore, the two proceedings were litigated separately and the outcome in one is not dependent upon the record or the outcome of the other.
The updated scoping memo ruled that the scope would be:
The Commission will adopt a fair and reasonable 2010 base year cost of capital for Great Oaks; it must therefore determine the appropriate capital structure, and a just and reasonable return on equity and total capital.
The Commission also will address the matter of subsequent adjustments to cost of capital, if any, for post-2010, and will determine a just and reasonable adjustment mechanism, if any, to change the adopted cost of capital for the two years between the 2010 base year and the next cost of capital proceeding for base year 2013. (November 4, 2009, Updated Scoping Memo, at 3-4.)
Great Oaks timely served supplemental testimony on November 13, 2009 as permitted by the updated scoping memo. The judge denied on November 23, 2009 a November 20, 2009 motion by DRA to strike the supplemental testimony. DRA timely served its testimony on December 9, 2009, and Great Oaks timely served rebuttal on December 29, 2009. There was one day of evidentiary hearings held on January 19, 2010.
There were two motions to strike filed on February 1, 2010: one by Great Oaks to strike DRA's written testimony; and another by DRA to remove Ex. GO-5 from the record.3 The assigned judge denied both motions indicating that the DRA witness was accepted as an expert witness and parties could argue the merits and relevance of Ex. GO-5. We affirm all procedural rulings. DRA's showing was an up-dated analysis from A09-05-001 et al and DRA's witness was involved as project manager of both proceedings and demonstrated sufficient understanding of the analysis and its ratemaking implications.
Concurrent Opening Briefs were filed on March 1, 2010 and the application was submitted upon filing of Concurrent Reply Briefs on March 17, 2010.
1 All statutory references are to the Public Utilities Code unless otherwise stated.
2 There is a certain ambiguity to the words "...may be readily distinguished..." which may have been better expressed as "... possibly distinguishable ..." in that the scoping memo could not conclusively reach such a finding, but it could anticipate such a finding. Black's Law Dictionary likewise defines "may" as a possibility, "not a word of command." (Black's law Dictionary, Fifth Edition, at 883.)
3 See also Transcript at 197 where Great Oaks argues the DRA witness did not perform all of the analysis himself. We find on a review of the record that the DRA witness showed a sufficient knowledge, and complete understanding of the offered analysis. As a matter of usual practice, we allow company and staff witnesses to adopt the work of consultants and subordinates when they demonstrate such an understanding. Additionally, Great Oaks was fully aware that DRA used a consultant in addition to its own staff witness and it did not object in a timely fashion.
