VIII. Revenues

The differences in estimates for gross revenues are in customer consumption and miscellaneous revenues, as shown in the following tabulation.

YEAR 2003 YEAR 2004

(Dollars in Thousands)

Items	AVR	ORA	Difference	AVR	ORA	Difference
Consumption	$10,382	$10,445	($63)	$12,777	$11,034	$1,743
Miscellaneous	4	13	(9)	4	13	(9)
Total Differences			($72)			$1,734

A. Customer Consumption

The following estimates applicable to the test years differed from those summarized in the joint comparison exhibit because that exhibit inadvertently reversed the consumption estimates between AVR and ORA.

Cubic Feet (CCF) Per Year

The differences in customer consumption estimates are in the Residential and Business classes. These differences resulted from AVR and ORA's use of different estimating models, time periods, and variables. AVR used the Econometric method with January 1988 through December 2001 monthly data of four variables. The variables were rainfall, temperature, time, conservation and a dummy variable. The dummy variable was used to account for items not specifically included in the correlation, such as the number of daylight hours, wind, and evaporation.² ORA used the Committee method that employed the Modified Bean Method of regression analysis based on January 1988 through December 2000 annual data of three independent variables; rainfall, temperature, and time.

Both of these methods have been used in prior Commission proceedings, but neither has been adopted by the Commission.³ The Econometric method is the latest method, which water utilities and Commission staff started using in 1992 to expand consumption data and calculations with additional variables. However, with no agreement between the utilities and Commission staff on a uniform Econometric method, parties continue to differ on the appropriate variables for deriving customer class consumption estimates.

For example, use of the Econometric method in AVR's last General Rate Case proceeding (GRC) by AVR and ORA (then called the Ratepayer Representation Branch of the Water Division) produced varied results, as noted in D.99-03-032. AVR conducted three variations of the Econometric method and ORA two variations. AVR's three variations for its 1999 test year residential class ranged from 302.1 to 323.0 Ccf and ORA's two variations from 249.7 to 350.7 Ccf. Similar results occurred for the 2000 test year. Part of these variations resulted from a bias effect of including time as a dependent variable in the Econometric method.

The acceptable method for estimating customer consumption prior to 1992 was the Committee method established by water utilities and Commission staff. After ten years of experience with the Econometric method, ORA reverted to the Committee method because of the results of its analysis of prior Econometric model results and actual consumption experience. That analysis showed that the Econometric model under-forecasted consumption 70% to 80% of the time while the Committee method "produced much better results."⁴ ORA has also used the Committee method in estimating test year customer consumption for a recent California Water Company GRC involving 15 districts and San Gabriel Water Company's GRC.⁵

Although AVR affirms that ORA's consumption estimates for residential and business customers are correct calculations using the Bean method as ORA applied it,⁶ it nevertheless rejected the results because the Committee method uses annual instead of monthly data, only uses three variables, and uses less data.

Both parties offered plausible reasons to adopt their consumption estimates. However, given the disagreement between AVR and ORA on the appropriate use and application of variable factors in the Econometric model, disparity in comparison of Econometric model results with actual results. We apply informed judgment in adopting the results of ORA's Committee method over the results of AVR's Econometric method in this proceeding. We recommend that AVR and other water utilities conduct a workshop with ORA to establish an agreed upon consumption estimating method for future GRCs. We adopt the 305.7Ccf Residential and 768.5 Ccf Business consumption forecast of ORA for the 2003 and 2004 test years.

B. Miscellaneous Revenues

AVR and ORA both included estimates for non-tariff lease revenue in each of the test years. Differences in estimates resulted from the revenue percentage allocated to ratepayers.

AVR included 30%, approximately $4,000, of the approximately $13,000 projected non-tariff lease revenue in its estimates pursuant to its understanding of the ratepayer/shareholder sharing mechanism set forth in D.00-07-018.⁷ ORA included the entire amount in its estimates for the test years. It did so "because the property taxes and the landscaping, rate plan and maintenance cost have been paid by the ratepayers."⁸

D.00-07-018, of which ORA was a party, established a ratepayer/shareholder mechanism for active and passive non-tariff revenues. For passive non-tariff revenues, as is the case of AVR's non-tariff leases, it provides for a 30% ratepayer and 70% shareholder split. That decision also required shareholders to absorb all incremental costs and taxes.

AVR did not identify any incremental costs or taxes. Although ORA contends that ratepayers paid all the operating costs for these leases, it had no idea whether associated costs were recorded as operating (ratepayer) or non-operating (non-ratepayer) expenses.⁹ To comply with D.00-07-018, 30% of the non-tariff leases should be allocated to operating revenue.

Absent a modification of D.00-07-017 or substantive reasons to deviate from that decision, we cannot treat AVR any differently than we treat other water utilities under our jurisdiction. We adopt AVR's estimates for miscellaneous revenues.