California-American Water Company
In A.11-05-003, direct testimony, and rebuttal testimony, California-American Water Company (California-American Water or CAW) sought Commission approval of the following:
· Capitalization of 50.31 percent long-term debt and 49.69 percent equity, if the Commission grants Special Request #417 and Special Request #3318 as requested by California-American Water in its general rate case (GRC), A.10-07-007;19
· Capitalization of 37.84 percent long-term debt and 62.16 percent equity, if the Commission denies
California-American Water's Special Request #4 and Special Request #33 in A.10-07-007;20· A cost of debt of 6.70 percent,21 a return on equity of 11.50 percent,22 and a rate of return of 9.08 percent,23 if the Commission grants California-American Water's Special Request #4 and Special Request #33 in A.10-07-007;
· A cost of debt of 6.70 percent,24 a return on equity of 11.50 percent,25 and a rate of return of 9.68 percent,26 if the Commission denies California-American Water's Special Request #4 and Special Request #33 in A.10-07-007;
· Discontinuation of the TIRBA,27 and authorization to recover the TIRBA balance of $2,081,86528 as a surcharge on customer bills over a 12-month period; and
· Continuation of the WCCM.29
For California-American Water's Application, DRA's testimony advocated the following recommendations:
· Capitalization of 52.2 percent long-term debt and 47.8 percent equity;30
· A cost of debt of 6.63;31
· A return on equity of 9.00 percent;32
· Discontinuation of the TIRBA33 and a TIRBA balance of $1,817,07334 to be recovered from ratepayers; and
· Continuation of the WCCM.35
As part of the comprehensive settlement, California-American Water and DRA agree to compromise on a capital structure consisting of 53 percent equity and 47 percent debt. The settlement on capital structure is independent of Special Requests #4 or #33 in California-American Water's pending GRC
(A.10-07-007).36 California-American Water and DRA agree to adopt DRA's recommended 6.63 percent cost of debt. The Parties agree to a return on equity of 9.99 percent for each Applicant as part of the comprehensive settlement. For California-American Water, this results in a rate of return of 8.41 percent.
Golden State Water Company
In A.11-05-004, direct testimony, and rebuttal testimony, Golden State Water Company (Golden State or GSW) sought Commission approval of the following:
· Capitalization of 44.4 percent long-term debt and 55.6 percent equity;37
· A cost of debt of 6.99 percent;38
· A return on equity of 11.50 percent;39
· A rate of return of 9.49 percent;40
· Discontinuation of the TIRBA and authorization to dispose of the credit balance in the TIRBA by way of Golden State's GRC filed on July 21, 2011, or alternatively via an advice letter to be filed and resolved by the Commission no later than the Commission's resolution of Golden State's GRC; and41
· Continuation of the WCCM, with a base year of 2012.42
For Golden State's Application, DRA's testimony advocated the following recommendations:
· Capitalization of 47.0 percent long-term debt and 53.0 percent equity;43
· A cost of debt of 6.99 percent;44
· A return on equity of 8.75 percent;45
· Discontinuation of the TIRBA46 and a TIRBA balance of $2,883,003 to be returned to ratepayers; and47
· Continuation of the WCCM.48
While Golden State originally requested a debt/equity ratio of 44.4 percent/55.6 percent and DRA originally requested that the values be 47.0 percent/53.0 percent, Golden State and DRA compromised on a capital structure of 45.0 percent/55.0 percent as part of the comprehensive settlement. DRA accepts Golden State's cost of debt of 6.99 percent, which reflects Golden State Water's actual cost of borrowing (including transactional costs). The Parties agree to a return on equity of 9.99 percent for each Applicant as part of the comprehensive settlement. For Golden State, this results in a rate of return of 8.64 percent. DRA does not oppose Golden State's proposal to discontinue the TIRBA. DRA accepts Golden State's calculation of the TIRBA balance ($407,797) as part of the Agreement, and Golden State agrees to a one-time customer surcredit to amortize that balance. The Agreement provides that within 30 days of the effective date of this decision, Golden State shall file a Tier 1 advice letter to implement the surcredit. DRA does not oppose continuation of the WCCM. Golden State and DRA agree that the above settlement terms will provide ratepayers with reasonable rates sufficient to maintain the financial soundness and stability of Golden State.
17 Special Request #4: that the Commission allow it to earn at its return on equity or equivalent interest rate on all deferred items when it has balances in excess of its short-term debt limit. A.10-07-007 at 12.
18 Special Request #33: that the Commission allows it to earn its authorized rate of return or equivalent interest rate on all Advice Letter projects that are not included in the rate base, until such time as they are included in the rate base and the Commission has authorized the return on and recovery of the investment in rates. A.10-07-007 at 16.
19 A.11-05-003 at 3 and Attachment A, Chapter 3, Table 1B; CAW Exhibit 2 (CAW/Stephenson Direct) at 3 and § IV.
20 A.11-05-003 at 3-4 and Attachment A, Chapter 3, Table 1C; CAW Exhibit 2 (CAW/Stephenson Direct) at 4 and § IV.
21 A.11-05-003 at 3 and Attachment A, Chapter 3, Table 3; CAW Exhibit 2 (CAW/Stephenson Direct) at 4 and § V.
22 A.11-05-003 at 3 and Attachment A, Chapter 3, Table 1B; CAW Exhibit 3 (CAW/Villadsen Direct) at 2 (lines 2324).
23 A.11-05-003 at 3 and Attachment A, Chapter 3, Table 1B; CAW Exhibit 2 (CAW/Stephenson Direct) at 4 and § VI.
24 A.11-05-003 at 3-4 and Attachment A, Chapter 3, Table 3; CAW Exhibit 2 (CAW/Stephenson Direct) at 4 and § V.
25 A.11-05-003 at 3-4 and Attachment A, Chapter 3, Table 1C; CAW Exhibit 3 (CAW/Villadsen Direct) at 2 (lines 23-24).
26 A.11-05-003 at 3-4 and Attachment A, Chapter 3, Table 1C; CAW Exhibit 2 (CAW/Stephenson Direct) at 4 and § VI.
27 A.11-05-003 at 10; CAW Exhibit 2 (CAW/Stephenson Direct) at 5 and § VII.
28 A.11-05-003 at 11; CAW Exhibit 6 (CAW/Stephenson Rebuttal Errata) at Attachment 8.
29 A.11-05-003 at 11 and CAW Exhibit 2 (CAW/Stephenson Direct) at 5 and § VIII.
30 DRA Exhibit 1 (DRA/Woolridge) at 54 (lines 11-12).
31 Id. at 57 (lines 7-8).
32 Id. at 3 (lines 7-8).
33 DRA Exhibit 3 (DRA/Kotyrlo) at 20 (lines 14-16).
34 DRA Exhibit 5 (DRA/Kotyrlo Errata) at 14 (lines 1-4).
35 DRA Exhibit 3 (DRA/Kotyrlo) at 4 (lines 6-7).
36 On June 7, 2012, the Commission issued D.12-06-016 in A.10-07-007, approving a settlement between California-American Water and DRA which includes approval of these Special Requests.
37 GSW Exhibit 1 (GSW/Tang Testimony) at 2.
38 Id.
39 Id.
40 Id.
41 GSW Amendment to Application at 2.
42 GSW Amendment to Application at 3.
43 DRA Exhibit 1 (DRA/Woolridge) at 55 (lines 4-5).
44 Id.
45 Id. at 2 (line 18) to 3 (line 8).
46 DRA Exhibit 3 (DRA/Kotyrlo) at 20 (lines 14-16).
47 DRA Exhibit 5 (DRA/Kotyrlo Errata) at 15.
48 DRA Exhibit 3 (DRA/Kotyrlo) at 5 (line 15-16).
