VI. Assignment of Proceeding
Geoffrey F. Brown is the Assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding.
1. The Commission staff held workshops on the issues raised by the OIR. The parties filed several rounds of written comment and presented oral argument.
2. To implement the three-year GRC cycle required by § 455.2, especially while limited to existing staff resources, the Commission must revise the existing RCP and methodologies.
3. Reducing the number of test years from two to one substantially reduces the review necessary for the GRC filing.
4. Staff's proposal to escalate both labor and non-labor revenue requirement components from the test year to the two escalation years is a reasonable means for forecasting costs.
5. The current means of including capital additions in the rate case cycle, two test years and one attrition year, is preferable to the proposals received.
6. Timely and efficient discovery is essential to processing rate cases as provided in this schedule.
7. Common forecasting methodologies for number of customers and per customer usage are feasible and useful.
8. ORA does not oppose Cal Water's request for additional attrition year increases to transition certain districts to the new RCP cycle.
9. Pursuant to § 455.2, the Commission must establish a cycle whereby every Class A water utility files a GRC every three years.
10. The term "test year" as used in § 455.2 should be interpreted to mean "expected effective date of revised rates."
11. Capital projects may be proposed and evaluated in either a GRC or other formal application.
12. The Commission and ORA have statutory rights to virtually all utility information.
13. The utility bears the burden of proving that its Proposed Application meets the requirements of today's decision.
14. To ensure that discovery is handled in a timely and efficient manner, the rules set out in the Opinion for a meet and confer process and maintenance of a privilege log should be adopted.
15. ORA's proposal for common forecasting methodologies is reasonable.
16. Pursuant to § 455.2, the Commission may authorize interim rates under certain conditions for GRCs included in the RCP. Interim rate increases may not exceed the rate of inflation.
17. Requests for interim rate relief should be made by motion of the utility applicant. The Presiding Officer will then prepare a decision for the Commission's consideration.
18. It is not necessary to routinely issue companion OIIs for each GRC, but the Commission may issue an investigation or show cause order whenever, in its discretion, such an order is appropriate.
19. Pursuant to § 702, utilities must comply with the requirements of all Commission orders, including the filing requirements established in today's decision. Failure to comply with a Commission decision is grounds for fines and other sanctions.
20. Waivers pursuant to § 455.2(c) may be approved by the Commission via the advice letter process.
21. The Rate Case Plan for Class A Water Utilities set out in the appendix to today's decision is consistent with § 455.2, is reasonable, and should be adopted.
IT IS ORDERED that:
22. The General Rate Case Plan for Class A Water Utilities set out in the appendix to today's decision is adopted.
23. All Class A water utilities shall comply with the schedule and rate case application content requirements set out in the appendix and discussed in today's decision.
24. No later than 60 days after the effective date of this order, the Office of Ratepayer Advocates (ORA) and Southern California Water Company shall devise and implement a mutually agreeable rate adjustment plan to transition Region I to the schedule adopted in today's order.
25. As agreed with ORA, California Water Service Company is authorized to file additional attrition year increases to transition certain districts to the schedule adopted today. Such increases shall be requested by advice letter which must comply with the requirements adopted by the Commission for the specific district in the last general rate case.
26. The parties shall file and serve a status report on Phase II issues no later than 120 days after the effective date of this order.
27. This proceeding shall remain open.
This order is effective today.
Dated June 9, 2004, at San Francisco, California.
MICHAEL R. PEEVEY
President
CARL W. WOOD
LORETTA M. LYNCH
GEOFFREY F. BROWN
Commissioners
I will file a dissent.
/s/ SUSAN KENNEDY
Commissioner
APPENDIX
Rate Case Plan for Class A Water Utilities
General Rate Applications
I. Introduction
The following rate case plan (RCP) supercedes the RCP adopted in D.90-08-045 on August 8, 1990. The intention of this RCP, like the 1990 RCP, is "to promote timely processing of such cases, to enable the balancing of the workload of the Commission and its staff over time, and to enable a comprehensive Commission review of the rates and operations of all Class A water utilities" by providing for the acceptance of rate case filings on a specified schedule. In addition, Public Utilities Code Section 455.2 now requires all Class A water utilities, and districts thereof, to file a general rate case (GRC) every three years, and that the Commission process the applications consistent with the RCP.
II. General Rate Case Structure and Process
Each utility or each district of a multi-district utility is scheduled to file its GRC once every three years,1 as specified in Section V. The RCP review period for each filing will be 14 months, beginning with the proposed application filing date and ending with the expected effective date of rates. The deadline for the utility to file its proposed application is either November 5 or May 1 with the requisite application being filed on the following January 5 and July 1, respectively, as provided below:
JANUARY FILERS |
JULY FILERS | |
Proposed Application Filed and Served |
November 5 |
May 1 |
Application Filed and Served, workpapers to staff |
January 5 |
July 1 |
Test Year |
Calendar year after application is filed (1/1 to 12/31) |
Fiscal year after application is filed (7/1 to 6/30) |
Effective Date of New Rates |
January 1, year following filing |
July 1, year following filing |
Escalation Year 1 |
Calendar Year after test year (1/1 to 12/31) |
Fiscal Year after test year (7/1 to 6/30) |
Escalation Year 2 |
Second Calendar Year after test year (1/1 to 12/31) |
Second Fiscal Year after test year (7/1 to 6/30) |
Example using 2005:
January Filers |
July Filers | |
Proposed Application Filed and Served |
November 5, 2004 |
May 1, 2005 |
Application Filed and Served, workpapers to staff |
January 5, 2005 |
July 1, 2005 |
Test Year |
1/1/06 to 12/31/06 |
7/1/06 to 6/30/07 |
Effective Date of New Rates |
January 1, 2006 |
July 1, 2006 |
Escalation Year 1 |
1/1/07 to 12/31/07 |
7/1/07 to 6/30/08 |
Escalation Year 2 |
1/1/08 to 12/31/08 |
7/1/08 to 6/30/09 |
The "Estimates of Non-labor and Wage Escalation Rates" shall also be used for Escalation Years 1 and 2 rate increase requests. Such requests shall cover the period specified above, and shall be sought by advice letter filed no later than 45 days prior to first day of the escalation year. The advice letter filing shall include all calculations and documentation necessary to support the requested rate increase. The requested rate increase shall be subject to the pro forma earnings test, as specified in the decision. Revenue requirement amounts otherwise subject to rate recovery, e.g., through balancing or memorandum accounts, shall not be subject to escalation.
All rate base items, including capital additions and depreciation, shall not be escalated but rather shall be subject to two test years and an attrition year, consistent with current practice.
The Water Division shall review the Advice Letter for compliance with this decision and other requirements. The Water Division may accept the advice letter as filed, accept it subject to refund, reject or suspend it. If accepted by Water Division, the advice letter shall be effective on the first day of the escalation year.
Informal communications between applicant and ORA are encouraged at all stages of the proceedings, including the PA review period, in order to facilitate understanding by the parties of their respective positions, to avoid or resolve discovery disputes, and to avoid unnecessary litigation. All information, however, necessary for the Commission to make its decision must be included in the record. While the Commission supports alternative forms of dispute resolution for GRC filings, any resulting agreement, and the record on which it is based, must meet all applicable Commission rules as well as the standards for settlements. A complete comparison exhibit, with supporting rationale, is essential to supporting any settlement agreement.
III. Schedule Summary
The target scheduling dates for timely processing of GRC filings, based on number of districts, are set out below. By mutual agreement, ORA and the utility may modify the date for filing the proposed application by no more than 10 days, with all subsequent dates being moved an equal number of days. The assigned ALJ and/or Commissioner shall set the final schedule for each proceeding at or after the PHC.
Day Schedule
Number of Districts
EVENT 1 2-4 5-6 7-8
1 Proposed Application Tendered -60 -60 -60 -60
2 Deficiency Letter Mailed -30 -30 -30 -30
3 Appeal to Executive Director -25 -25 -25 -25
4 Executive Director Acts -20 -20 -20 -20
5 Application Filed 0 0 0 0
6 PHC & PPH, if any, Held 5 - 75 6 - 75 7 - 75 8 - 75
7 ORA & Intervenor(s) distribute
Reports 97 102 112 122
8 Utility Distributes Rebuttal
to ORA and Intervenor Reports 112 117 127 142
9 Formal Settlement Negotiations 116 121 131 146
10 Hearings 126-130 131-135 141-145 162-166
11 Initial Briefs Filed and Served 150 155 170 191
12 Reply Briefs Filed and Served2 157 162 177 201
13 ALJ Memo to Water Division 170 177 195 221
14 Water Division provides Tables 228 233 248 269
15 ALJ's Proposed Decision Mailed 240 245 260 281
16 Comments on Proposed Decision 260 265 280 301
17 Reply Comments 265 270 285 306
18 Commission Meeting 280 285 300 321
IV. Detailed Schedule
1. Proposed Application (PA) Filed
Day -60 (All Applications)
A. Filing Dates of PA
No later than November 5 for water utilities scheduled to file the final application on January 5, and no later than May 1 for water utilities scheduled to file on July 1.
B. Number of Copies of PA
Seven copies shall be tendered to the Commission's docket office. In addition, four copies to ORA for single district filings, five copies for multi-district filings, and a copy to the Commission's Legal Division. All ORA and Legal copies shall include a full set of workpapers.
Applicant shall furnish copies of the PA and workpapers to interested parties on written request.
C. Required Content of PA
A utility's application for a rate increase must identify, explain, and justify the proposed increase. The PA shall include, but not be limited to, the following:
Summary of the Requested Increase
Compare the proposed amounts to the last adopted and last recorded amounts to determine the difference in dollars and percentages. Show the difference, i.e., the proposed increase, in a table as set out below.
Comparison of Proposed Increase to Last Test Year Adopted and Recorded Actual Amounts | ||
Last Test Year Adopted |
Last Recorded Year( | |
Total Rev Req $ |
||
Total Rev Req % |
||
Rate Base $ |
||
Rate Base % |
||
Operating Expenses $ |
||
Operating Expenses % |
||
Rate of Return |
||
List of Primary Cost Increases
The five most significant issues, in terms of dollars, that the utility believes require the rate increase. Identify the cause of the cost increase and include cross-references to explanatory testimony.
List of Contentious Issues
List all issues on which a different outcome is sought on an issue previously addressed by the Commission for this utility, or in a reported Commission decision for another water utility, and all significant issues not previously addressed by the Commission. Include the dollar impact of these issues, and a brief summary of the utility's rationale with cross-references to supporting testimony.
Results of Operation
Include draft testimony, with supporting analysis and documentation, describing the utility's overall results of operations. All significant changes from last adopted and recorded shall be explained. Forecasted amounts shall include an explanation of the forecasting method.
The utility and ORA shall use the "New Committee Method" to forecast per customer usage for the residential and small commercial customer classes in general rate cases. Customers will be forecasted using a five-year average of the change in the number of customers by customer class. Should an unusual event occur, or be expected to occur, such as the implementation or removal of limitation on the number of customers, then an adjustment to the five-year average will be made. The customer consumption shall be calculated by using a multiple regression (any commonly used multiple regression software could be employed, e.g., Eviews, SAS, TSP, Excel, Lotus), based on the material in the "Standard Practice No. U-2" and the "Supplement to Standard Practice No. U-25" with the following improvements:
· Use monthly data for 10 years, if available. If 10 years data is not available, use all available data, but not less than five years of data. If less than five years of data is available, the utility and ORA will have to jointly decide on an appropriate method to forecast the projected level of average consumption.
· Use 30-year average for forecast values for temperature and rain.
· Remove periods from the historical data in which sales restrictions (e.g., rationing) were imposed or the Commission provided the utility with sales adjustment compensation (e.g., a drought memorandum account), but replace with additional historical data to obtain 10 years of monthly data, if available.
Water sales for all classes of customers for utilities that are under government-mandated production limitations will be determined based on that limitation and consideration of unaccounted for water and historical production reserves while under the imposed limitation.
Water sales for customer classes other than residential, multifamily, and business (such as industrial, irrigation, public authority, reclaimed, and other) will be forecasted on total consumption by class using the best available data.
Test year revenues will be based on the test year forecasted sales and customer estimates. Other revenues will be estimated using the best available data.
For the first escalation year customers will be estimated by adding the five-year average change in customers by customer class to the test year customers. For the second escalation year customers will be estimated by adding the five-year average change in customers by customer class to the first escalation year customers.
Sales for the escalation years will be estimated for the residential, multifamily, and business classes by multiplying the number of customers for each escalation year by the test year sales per customer. The test year sales for all other customer classes will be used for both escalation years.
Revenues for the escalation years will be based on each year's forecast of sales and customers. Other revenues will be estimated using a five-year average of recorded other revenue.
Expenses
For test year district and general office expenses, excluding water production related expenses, the utilities and ORA may forecast using traditional estimating methodologies (historical averages, trends, and specific test year estimates). In addition to any other methodology the utility may wish to use, the utility shall also present an inflation adjusted simple five-year average for all administrative, operational and maintenance expenses, with the exception of off-settable expenses and salaries in its workpapers.
Escalation year labor expenses will be estimated by escalating test year labor expenses by the most recent labor inflation factors as published by the Office of Ratepayer Advocates. Non-labor escalation year expenses, excluding water production related expenses, will be estimated by escalating test year non-labor expenses by the most recent composite non-labor 60%/compensation per hour 40% inflation factors published by ORA. In each water utility's escalation year advice letter filing the most recent ORA inflation factors will be used. Escalation year water production related expenses will be based on escalation year sales.
All non-recurring and significant expense items shall be removed prior to such escalation. A significant expense is equal to or greater than 1% of test year gross revenues.
Expense items subject to recovery via off-set accounts, e.g., balancing accounts, shall not be escalated.
Escalation year expenses specifically not addressed in the ORA's published inflation factors, (such as insurance) will be escalated based on CPI-U for most recently available 12 months, as provided in the decision.
Escalation year expenses may also be increased by the most recent five-year average customer growth.
Show results of operation in summary table as specified by the Water Division.
Regulated Plant In Service
Include draft testimony, with supporting analysis and documentation, describing the utility's regulated plant in service. All significant changes from lasted adopted and recorded shall be explained. Forecasted amounts shall include an explanation of the forecasting method. All significant capital additions shall be identified and justified, and must include need analysis, cost comparison and evaluation, conceptual designs, and overall budget. Also include a comparison of the forecasted capital additions adopted in the last GRC and actual capital additions.
In addition to any other methodology the utility may wish to use, the utility shall derive the test years and attrition year estimates by taking the year-end properly recorded plant balance of the latest recorded year and adding to it the average plant additions of the last five years. The results of this methodology may be included in workpapers.
Revenue Requirement
Include draft testimony, with supporting analysis and documentation, describing the utility's revenue requirement. All significant changes from last adopted and recorded shall be explained. Forecasted amounts shall include an explanation of the forecasting method.
Cost of Capital
Include draft testimony, with supporting analysis and documentation, describing the utility's proposed capital structure and rate of return. All significant changes from last adopted capital structure and cost of capital shall be identified and explained. Present cost of capital information in summary table as set out below:
