IV. THE DECISION DOES NOT VIOLATE SECTION 792.5 OF THE PUBLIC UTILITIES CODE

In 1976, the Legislature enacted Section 792.5, which authorized expense offsets and required that utilities, upon receiving authorization to pass through the expense costs, maintain a reserve account reflecting the difference between actual costs incurred by the utility and the revenue collected through the offset rate increase. CWA alleges that by "requiring a water utility that is over earning to reduce the amount of any undercollections [offset expenses] by the amount of over earning, to remove the amount of the over earning from the balancing account, and to amortize the removed amount below the line, the Commission is changing the statutory rules governing balancing accounts in a way not authorized by law." (CWA Rhg. App., p. 15.) SCWC alleges that D.03-06-072 violates Section 792.5 by requiring a reserve account that no longer reflects the balance between supply costs and revenues. (SCWC Rhg. App., p. 5.) Moreover, SCWC alleges that the calculation of the balancing account as provided in Appendix A of the decision contravenes the plain language of Section 792.5. (Id. at 6.)

Applicants' assertions are inaccurate and without merit. Section 792.5 does not prescribe a method by which we shall adjust or not adjust the balancing account. The methods used, such as the revised procedures, are at our discretion. Section 792.5 confirms this by authorizing us to take into account by appropriate adjustment or other action any positive or negative balance remaining in the balancing account.

CWA states that Section 792.5 governs balancing accounts for both electric and water utilities without distinction between the two industries. (CWA Rhg. App., p. 17.) CWA asserts that, unlike balancing accounts for electric utilities, those for water utilities are now subject to an earnings test and that "[t]he Commission has not explained why recovery of undercollections [offset expenses] in water utility balancing accounts should be conditioned on whether or not a water utility is over earning, when no such condition applies to electric utilities." (Id. at 18.)

CWA fails to acknowledge that historically there have been differences between the two types of balancing accounts, and that we are under no obligation to use the same procedures for water utility balancing accounts as we use for electric utility balancing accounts. Balancing accounts for water utilities record only the incremental change in cost increases incurred and revenues received since the utility's last GRC or last offset rate increase. Moreover, the application of an earnings test to balancing accounts is not new. We first established rules for expense offsets for water utilities in 1977, and those rules required that a rate of return, means test be applied to determine a utility's eligibility for the offset program. (Reso. W-4294, p 8.)

Balancing accounts for electric utilities differ by incorporating all rates established to provide revenue to utilities for fuel costs, offset rate increases, as well as rates established in the GRC. All of the revenue received for the fuel expenses are then compared to all bills for fuel incurred to determine the over or under collection in the account. (See the Energy Resource Recovery Adjustment (ERRA ), D.02-10-062, formerly ECAC.) Before recovery is allowed, electric utility balancing accounts must undergo a reasonableness review, which is a lengthy and contentious process. If some expenses are found to be imprudent, those expenses are disallowed for recovery.

Based on the above, it is evident that the revised procedures for recovery of balancing accounts do not violate Section 792.5.