Comments on Proposed Decision and Alternate Proposed Decision

The principal hearing officer's proposed decision was filed with the Commission and served on all parties in accordance with Section 311(d) of the Public Utilities Code and Rule 77.1 of the Rules of Practice and Procedure. CalAm, ORA, and Santa Cruz filed comments; CalAm and Santa Cruz filed replies to comments.

CalAm generally supports the proposed decision, but raises three topics in its comments: Its request that the Commission set an effective date of September 1, 2003 for the TY2003 rates for Sacramento, Larkfield and Felton districts; a request to clarify the decision wording that describes our intent to disallow from rate base one-half of any unrecovered contamination-related investments in Sacramento district; and error corrections needed in the figures in Table 1 and associated decision text and the appendices. We address each of those topics below.

ORA's comments take issue with the proposed decision's treatment of contamination-related investments in Sacramento district. We consider this included in our discussion below of CalAm's three topics. ORA is satisfied with the proposed decision's treatment of all of the other issues.

Santa Cruz argues that CalAm has failed to carry the burden of proving its claimed Citizens acquisition-related synergies and should not recover the annual acquisition premium amortization cost in rates; that a major part of the claimed Citizens-related synergies should be attributed instead to the RWE transaction; and that CalAm should have been required to prove and pass through to ratepayers in this proceeding the benefits of the RWE transaction. After review, we conclude that the proposed decision adequately addresses those claims and have made no changes with respect to them.

On December 18, 2003, approximately one month after the proceeding was submitted for decision, CalAm filed a motion requesting that the Commission set an effective date of September 1, 2003 for the TY 2003 results of operations and rates for Sacramento, Larkfield and Felton districts. In support, it cited two earlier Commission decisions granting interim rate relief to class A water utilities.⁸⁸ The relief it seeks, CalAm argues, is similar to that the Commission granted in those two earlier decisions. We disagree. As Santa Cruz points out in its reply comments, where the Commission has deviated from its general policy and practice of making GRC rate increases effective on or after the effective date of the GRC decision, it has done so by issuing an interim decision announcing that whatever rates were to be established in the final decision would apply prospectively, as of or after the date of the interim decision. That was the case with the two decisions CalAm cites. CalAm offers no instance in which the Commission's decision set an effective date for rates that was earlier than the date of that decision, nor do we know of any such instance. That would, in fact, be a classic case of retroactive ratemaking and prohibited under Public Utilities Code Section 728.⁸⁹ CalAm's motion is denied.

CalAm requests we modify the proposed decision's wording to clarify our intent to disallow from rate base one-half of any unrecovered contamination-related investments in Sacrament district. Indeed, ORA's comments indicate that it may not have understood that wording the way it was intended. The last three sentences of the Contamination-Related Projects section now provide a clearer explanation.

CalAm notes that the appendices and Table 1 and associated decision text of the proposed decision contained several errors due to incorrect information inadvertently provided by CalAm and by the Water Division in its advisory capacity to the ALJ. No party has objected to CalAm's suggested corrections, and they are now incorporated into this decision.

An Alternate Proposed Decision (APD) was mailed on April 22, 2004. On April 29, 2004 CalAm and Santa Cruz filed comments on the APD.

CalAm expressed general support for the APD and proposed a series of textual clarifications, which we have incorporated.

Santa Cruz argues that the APD is superior to the PD, but renews its objections to the findings common to both. We have addressed these objections above. Its motion to file reply comments is denied.

⁸⁸ D.02-12-063 in re Apple Valley Ranchos Water Company; and D.03-04-033 in re California Water Service Company, citing in turn D.98-12-078 in re Pacific Gas and Electric Company. ⁸⁹ The California Supreme Court has repeatedly affirmed the prohibition against retroactive ratemaking. See, e.g., Pacific Tel. & Tel. Co. v. Public Utilities Commission (1965) 62 Cal. 2d 634, 655; and City of Los Angeles v. Public Utilities Commission (1972) 7 Cal. 3d 331, 357. More recently, the Legislature has provided in newly-added Section 455.2(b) a specific, more limited remedy for situations in which the Commission's water GRC decision does not become effective on the first day of the test year. CalAm has not sought to avail itself of that relief.