5. Operating Revenues

5.1. Investment Income

ORA's financial witness recommended adding $121,600 to operating revenues annually as ratepayers' "share" of interest earned on Park's retained earnings investments. This unusual recommendation - apparently the first ever made in a water utility rate case - was based on the payroll time and expense incurred by Park in connection with these investments and on a theory that retained earnings derive from ratepayers. Park's witness testified that staff time spent on retained earnings was minimal (about 18 hours per year), and that the retained earnings at issue are not in rate base but represent money retained by the company prior to investment in utility plant or distribution to shareholders as dividends.

Park showed that its total capitalization exceeds rate base by $24.4 million. This difference, it argues, can only result from capital contributed by stockholders or borrowed money held by the company prior to investments in rate base. Park states that stockholders bear the risk of borrowing money in advance of it being invested in the utility's rate base.

We agree with Park that it is inappropriate to share investment income from investing shareholder funds, just as it would not be appropriate to charge ratepayers should the investments generate a loss. However, Park's payroll numbers have been reduced by $1,500 (the only estimate that appears in the record) to reflect executive time spent on this non-ratepayer investment task.