V. THE EXCLUSION OF "EXTRAORDINARY ITEMS" OF REVENUE AND EXPENSES FROM THE CALCULATION OF OVER EARNINGS IS NEITHER UNLAWFUL NOR UNCONSTITUTIONAL

D.03-06-072 requires water utilities, when determining over earnings, to identify any extraordinary sources of revenues or expenses that are not typically experienced every year and to exclude them, unless they were included as reasonable forecasts in the utility's last GRC. (D.03-06-072, Appendix A, No. 3.) CWA alleges that the exclusion of extraordinary items from the determination of whether a utility is over earning is not supported by any evidence, and is arbitrary and capricious in violation of substantive due process. CWA also alleges that the decision is vague and ambiguous in its failure to define an extraordinary expense or revenue. (CWA Rhg. App., p. 19 - 21.)

Once again, these objections are inaccurate and without merit. Extraordinary expenses are by their very nature unusual and not readily foreseeable. Further, extraordinary expenses and income have never been treated as part of the regular earnings calculations of water utilities by our procedures, nor should they be. Such expenses are inherently unpredictable and not part of the "business as usual" operations of the utility. Thus, they should continue to be treated via Advice Letters and Memorandum Accounts and not considered part of the earnings or expenses used for calculating regular utility earnings. Using such expenses and income for purposes of calculating utility earnings would distort rather than correct the comparison of actual expenses to actual earnings because of the "extraordinary" nature of such expenses and income. Providing the Advice Letter and Memorandum Account process ensures that we will consider any extraordinary cost or revenue item. Thus, the claim that the exclusion of extraordinary items is arbitrary and capricious and violates substantive due process lacks merit.