4. Regulatory Environment
Our regulatory framework for Class A water utilities in California is a strong and responsive framework and is recognized as such. It provides stable and predictable reviews in the form of general rate cases (see D.07-05-062) where we examine in detail and adopt a revenue requirement sufficient to provide an opportunity to recover reasonable operating costs. Additionally, we carefully review and determine an appropriate cost of capital and return on equity. This proceeding is a specific regulatory enhancement adopted in the latest rate case plan for water utilities. Finally, we provide for each company, based upon reasonable showing of need, an available comprehensive array of balancing accounts4 and memorandum accounts which assure recovery of reasonably incurred costs and provide an opportunity to address unpredictable events ill-suited to inclusion in general rate cases, for example, catastrophic events such as wild fires and earthquakes.5 Thus, the regulatory framework provides timely reasonableness reviews of balancing and memorandum accounts that recover significant portions of the company's costs free of the forecast risk inherent in general rate cases.
We know that California depends on having financially viable public utilities, and we are bound by Pub. Util. Code § 107.106 to ensure that a jurisdictional water utility has reasonable rates; therefore, all of our decisions must ensure that these regulated entities have a reliable process to recover their reasonable costs included in balancing and memorandum accounts; that we adopt reasonable forecasts in base sales; and the utility has an opportunity to earn a fair return.
4 Great Oaks can recover actual pump taxes and purchased power via a Commission authorized balancing account.
5 Although all Class A water companies in California have authority to establish a Catastrophic Event Memorandum Account, Great Oaks has not filed for one. It has three memorandum accounts: Santa Clara Valley Water District Memorandum Account, Military Family Relief Program Memorandum Account and a Low Income Customer Assistance Program Memorandum Account.
6 Section 701.10: The policy of the State of California is that rates and charges established by the commission for water service provided by water corporations shall do all of the following: (a) Provide revenues and earnings sufficient to afford the utility an opportunity to earn a reasonable return on its used and useful investment, to attract capital for investment on reasonable terms and to ensure the financial integrity of the utility; (b) Minimize the long-term cost of reliable water service to water customers; (c) Provide appropriate incentives to water utilities and customers for conservation of water resources; (d) Provide for equity between present and future users of water service; (e) Promote the long-term stabilization of rates in order to avoid steep increases in rates; (f) Be based on the cost of providing the water service including, to the extent consistent with the above policies, appropriate coverage of fixed costs with fixed revenues.
