4. Exceptions to Traditional Rate Setting
Although the district-by-district rate setting process remains the standard, the Commission has also made exceptions to this approach. For example, in 2010, the Commission approved California Water Service Company's request to consolidate its Mid-Peninsula and South San Francisco Districts into a single new district, Bayshore District and establish uniform tariffs for this new district.5
In 1994, Golden State Water Company (GSWC) consolidated its 16 districts into three regions while continuing to keep the ratemaking process at the district level.6 GSWC's Region I included seven separate ratemaking districts; Region II a single ratemaking district; and Region III eight ratemaking districts.
GSWC's regionalization had no effect on the number of ratemaking areas in its system until 1999, when it consolidated its eight ratemaking districts in Region III into a single region-wide ratemaking area with uniform tariffs. Because of the disparity in the rates of the eight districts in Region III at that time, the Commission adopted a phase-in plan to transition the individual ratemaking areas to regional tariffs. The tariff rates for those districts whose rates were above the regional-wide tariffs were frozen until the region-wide tariffs increased and reached the level of the frozen districts' rates.7 This consolidation of districts in Region III reduced the number of GSWC's 16 ratemaking areas to nine.
In 1992, the Division of Ratepayer Advocates and the Class A water utilities jointly developed a set of policy guidelines to be considered in district rate consolidations. Those guidelines established four criteria: proximity, rate comparability, water supply and operation, as detailed in Decision (D.) 05-09-004:
1. Proximity: The districts must be within close proximity to each other. It would not be a requirement that the districts be contiguous as it is recognized that present rate-making districts consist of separate systems which are not connected. It was suggested that districts within 10 miles of each other would meet the location criteria.
2. Rate Comparability: Present and projected future rates should be relatively close with rates of one district no more than 25% greater than rates in the other district or districts. To lessen the rate impact of combining districts it may be necessary to phase in the new rates over several years.
3. Water Supply: Sources of supply should be similar. If one district is virtually dependent upon purchased water, while another district has its own source of supply, future costs could change by a greater percent for one district versus the other. This could result in significantly different rates in the future even if present rates were quite similar.
4. Operation: The districts should be operated in a similar manner. For example, if a single district manager presently operates two or more districts and the billing system is common to the same districts, such an operation would support the combination of the districts.
In D.05-09-004, the Commission stated that the 1992 guidelines were intended to set criteria for single tariff pricing that, when met, would establish prima facie reasonableness of the proposed consolidation. The Commission concluded that, while not determinative, the criteria were helpful in evaluating rate consolidation proposals.
The Commission again applied the 1992 guidelines in D.08-05-018, when it declined to adopt California-American Water's request to consolidate its Sacramento and Larkfield districts.8
With the Commission's adoption of its 2010 Water Action Plan, and in light of the Commission's continuing efforts to set rates that balance investment, conservation, and affordability we institute this Rulemaking to consider modifying the 1992 guidelines or establishing new consolidation guidelines for high cost areas for the multi-district water utilities. The Rulemaking will also consider a "High-Cost" fund mechanism.
Named respondents identified in Section 10 of this OIR are required, and all other entities are invited, to file initial comments and reply comments to the following questions and requests for information. Subsequent to the receipt and review of filed initial comments and reply comments, the assigned Administrative Law Judge, in consultation with the assigned Commissioner, may establish a workshop schedule to address issues and to seek a consensus, to the extent possible, on guidelines for "High-Cost" funds or for consolidating districts and setting uniform rates for the multi-district water utilities, as a means to help balance utility investments, conservation and affordability of rates. Any adopted guidelines will apply to all multi-district water utilities.
Question 1 - Identify current mechanisms utilized to subsidize rates and prevent rate shock, such as low income rates and rate support funds. Are these current mechanisms adequate to address ratepayer needs in general? Do these current mechanisms achieve an appropriate balance between utility investments, conservation and affordability of rates?
Question 2 - Should the Commission modify the existing 1992 consolidation guidelines, as described in D.05-09-004? If so, what specific modifications are warranted and what are the justifications for those modifications?
Question 3 - To the extent a new district consolidation mechanism is necessary, identify and discuss significant characteristics of water districts that should be included in an analysis of whether consolidation is appropriate. Examples of significant characteristics include: infrastructure, geography, topology, hydrology, climate, water quality, nature of water supply, rate differences and average water usage.
Question 4 - What advantages and disadvantages, if any, would result from implementing a "High-Cost" fund? How could such a "High-Cost" fund operate?
Question 5 - What requirements and conditions, if any, should be included in any new district consolidation mechanism or "High-Cost" fund?
Question 6 - What impacts would increased consolidation of water utility districts or the establishment of a "High-Cost" fund have on: (A) land development in the districts and (B) ongoing water and energy conservation efforts, including those mandated by Federal and State laws such as the Water Conservation Act of 2009? Is it possible to effectively mitigate these impacts?
Question 7 - What impact, if any, would Public Utilities Code Section 701.10 or other statutory requirements have on the ability of multi-district water utilities to establish a "High-Cost" fund or to increase consolidation?
Question 8 - Identify any additional impacts that would result from increased consolidation of water utility districts or the establishment of a "High-Cost" fund.
5 Decision 10-12-017, at 20. The Commission approved the consolidation of these districts as part of a settlement between the Division of Ratepayer Advocates and California Water Service Company.
6 Region I included water operations located in the central and northern portions of California. Region II included water operations located in or near the South Bay area of Los Angeles County. Region III included water operations located in the mountains and upper desert areas of Southern California, portions of Orange County, and a number of cities in the Inland Empire region of Los Angeles. (Exhibit 1 of GSWC to Investigation 07-01-022).
7 As of 2007, six of the former ratemaking districts in Region III were on the Region III tariff and two of the former ratemaking districts' rates remained frozen.
8 D.08-05-018, at 32.
