XIII. Assignment of Proceeding
Michael R. Peevey is the Assigned Commissioner and Bertram D. Patrick is the assigned Administrative Law Judge in this proceeding.
1. Fontana Division was barely able to meet its 2003 summer peak-day demand following four years of drought and closure of seven wells due to perchlorate contamination.
2. Fontana Division expects to obtain 80% of its water supply from the Chino Basin; therefore, cleanup of the basin is a high priority matter.
3. The full extent of the perchlorate contamination plume in the Chino Basin has not been defined, and DHS has yet to announce its latest drinking water standard; therefore, San Gabriel needs flexibility to deal with events as they unfold.
4. Fontana Division is adding over 1,000 connections per year and this rate of growth is expected to continue for the next few years, requiring the addition of considerable infrastructure.
5. It is not reasonable to defer addition of new plant in Fontana Division until outside funding is received for contamination cleanup of the Chino Basin.
6. San Gabriel's proposed construction program, while necessary, needs to be spread over more years to reduce rate shock to its customers.
7. The recorded five-year average growth rate of rate base in Fontana Division was 10%.
8. San Gabriel has justified its proposed construction program including plans for needed plant additions that would increase its rate base at a rate of 10% per year.
9. A rate base cap limiting rate base growth to 10% per year would moderate customer rate shock from San Gabriel's proposed construction program and, at the same time, allow San Gabriel to maintain the current level of plant additions needed to meet growth in the near term.
10. San Gabriel needs flexibility within the rate base cap to make its own decisions about the need for and timing of projects, and to make changes and substitutions as necessary to its proposed construction program.
11. San Gabriel's proposed construction program is reasonable, but should be spread over more years to reduce rate shock.
12. Deferral of the proposed new office building will reduce rate shock to Fontana Division customers. However, purchase of land for the building would be in ratepayer's best interests since land for such a facility in Fontana may not be available later.
13. The rate base cap adopted in this proceeding should include all capital costs that San Gabriel had in its application proposed to recover by advice letter filing. Therefore, San Gabriel should not be authorized to file advice letters to recover any additional capital costs. However, operating costs if not included in rates may be recovered by advice letter filing.
14. San Gabriel has shown a need for nine new O&M positions, four new A&G positions, and three new General Office positions.
15. Each new position authorized today should be included in rates after San Gabriel has filled the position and filed an advice letter for inclusion of the cost in rates. Such advice letter filings will be allowed once each year.
16. The record does not support ORA's proposed $15.1 million adjustment for condemnation proceeds received by San Gabriel.
17. The record in this proceeding is not sufficient to decide the ratemaking treatment of Plant Sales and Condemnation proceeds at issue.
18. The County reimbursed San Gabriel the $2.6 million cost of the F-10 treatment plant. Therefore, there is no shareholder investment in the cost of the F-10 treatment plant.
19. In addition to the $2.6 million cost of the F-10 treatment plant, the County reimbursed San Gabriel $6.0 million as compensation for damages to its water rights resulting from contamination originating from the County's landfill.
20. A ROE of 10.10% and return on rate base of 9.4% for Fontana Division should allow San Gabriel to issue debt at reasonable cost and provide reasonable return on investment.
21. The record does not support a reduction in San Gabriel's executive salaries for being unreasonable compared to other utilities.
22. San Gabriel allocates its Chairman's and President's salaries based on actual time spent on affiliate matters.
23. No need has been shown to change the cost allocation method between San Gabriel and its affiliates approved in D.03-09-036.
24. Consistent with the Commission-approved practice in its Los Angeles Division, San Gabriel proposes to record in a water quality memorandum account any reimbursements from polluters or proceeds ultimately received, so that they can be used to reduce rates. Such a memorandum account should be authorized.
1. The rates and charges set forth in Appendix D to this decision are just and reasonable for application by San Gabriel in its Fontana Division in the test years and attrition years as set forth below.
2. San Gabriel's proposed construction program should be approved subject to the rate base cap proposed in this proceeding.
3. Commission review of the reasonableness of San Gabriel's investment in the proposed new office building should be deferred to the next GRC proceeding. However, San Gabriel should be authorized to purchase land for such a building and include the cost in ratebase subject to the ratebase cap.
4. Fontana Division rates should be set to reflect ratebase increases of 10% per year for test year 2004 and, subject to any otherwise applicable earnings test, for each of attrition years 2005 and 2006.
5. In its next NOI filing, San Gabriel should address the use of reclaimed water in Fontana Division.
6. In its next NOI filing, San Gabriel should address the ratemaking treatment of all sale and condemnation proceeds received from 1996 onwards.
7. Since there are no shareholder funds invested in the F-10 treatment facility, the $2.6 million reimbursement provided by the County should be treated as a Contribution in Aid of Construction, and be removed from ratebase.
8. The ratemaking treatment of the remaining $6.0 million San Gabriel received from the County as compensation for damages to its water rights, along with other sale and condemnation proceeds San Gabriel received from 1996 onwards, should be deferred to the next GRC proceeding.
9. San Gabriel should be authorized to open a water quality memorandum account for Fontana Division to record all costs incurred and proceeds received for treatment of groundwater contamination, as approved in D.02-10-058 for its Los Angeles Division.
10. Today's decision should be made effective immediately.
IT IS ORDERED that:
1. San Gabriel Valley Water Company (San Gabriel) is authorized to file in accordance with General Order 96-A, and to make effective on not less than five days' notice, the revised tariff schedules included as Appendices A through D to this order. The revised tariff schedules shall apply to service rendered on and after their effective date.
2. Advice letters for authorized rate increases shall be filed in accordance with General Order 96-A, no earlier than November 1 of the preceding year. The filing shall include appropriate work papers. The increase shall be the amount authorized herein, or a proportionate lesser increase if San Gabriel's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the adopted change to the pro forma test, for the 12 months ending September 30 of the preceding year, exceeds the lower of (a) the rate of return on rate base found reasonable by the Commission for San Gabriel for the preceding year in the then most recent rate decision, or (b) the return on rate base authorized herein for the preceding year. The advice letters shall be reviewed by the Water Division for conformity with this decision, and shall go into effect upon Water Division's determination of compliance, not earlier than January 1 of the year for which the increase is authorized, or 30 days after filing, whichever is later. The tariffs shall be applicable to service rendered on or after the effective date. The Water Division shall inform the Commission if it finds the proposed increase does not comply with this decision or other Commission requirements.
3. San Gabriel in its next Notice of Intent (NOI) filing for Fontana Division, shall provide a report detailing its efforts to supply reclaimed water to large customers able to use this water for non-potable uses. If necessary, San Gabriel may hire the services of a consultant to assist in this matter, and may request recovery of reasonable costs for such services.
4. San Gabriel's proposed priority list (Exhibit 54) of plant additions proposed to be implemented through 2006, with the exception of deferral of the proposed new office building, is adopted subject to the rate base cap imposed by today's decision, as set forth in the foregoing opinion and in Findings of Fact 6-13.
5. San Gabriel may purchase land in Fontana for an office building and include the cost in rate base, subject to the rate base cap imposed by today's decision. In its next general rate case proceeding, if San Gabriel requests authorization to construct a new office building, San Gabriel shall address the ratemaking treatment of the proceeds from sale of the existing facility.
6. San Gabriel is authorized to recover through advice letter filings the operating costs for new projects not included in rates.
7. San Gabriel is authorized 13 new positions in its Fontana Division and three new positions in its General Office. The costs for these positions are not included in rates at this time. After San Gabriel has hired personnel for these new positions, it may request rate recovery of these costs by means of an advice letter filing. Such advice letter filings shall be allowed only once every year.
8. San Gabriel, in its next NOI filing for Fontana Division, shall fully address all sale and condemnation proceeds received from 1996 onwards with supporting justification for the proposed ratemaking treatment. Since the Commission addresses the usefulness of property and gain on sale on a case by case basis, San Gabriel shall address each individual transaction separately. The revenue related to sale and condemnation proceeds shall be subject to refund pending the Commission's decision in the next general rate case proceeding.
9. The motion of the City of Fontana for an audit of sale and condemnation proceeds is granted. Prior to the next NOI filing, the Commission's Water Division shall audit all sale and condemnation proceeds received by San Gabriel from 1996 onwards.
10. The motion of the Office of Ratepayer Advocates for sanctions against San Gabriel for alleged violation of the Commission's Rule 1 is denied.
11. For its Fontana Division, San Gabriel is authorized returns on rate base of 9.41% for Test Year 2003, and 9.40% for Test Year 2004 and Attrition Years 2005 and 2006.
12. San Gabriel may amortize through rates all existing balances in its balancing and memorandum accounts, as detailed in today's decision.
13. San Gabriel is authorized use of full cost balancing accounts for Fontana Division subject to the limitations prescribed in D.03-06-072.
14. San Gabriel is authorized to implement a water quality memorandum account and it may add to this account future expenditures related to water quality, including operations and maintenance expenses of needed wellhead treatment facilities that cannot reasonably be forecasted, and also to record any reimbursements from polluters or government funding proceeds received for the construction and operation of the new treatment facilities.
15. In its next NOI filing, San Gabriel shall include a report on water quality served to its customers, so that the Commission has a record on which it can make a finding that drinking water quality standards have been met in Fontana Division. A copy of that report shall be provided to Department of Health Services.
16. In its next NOI filing, San Gabriel shall include a report analyzing the need for the proposed major capital improvements for water supply, storage, and water delivery included in its GRC filing. San Gabriel may utilize the services of a consulting engineer to prepare this report, and may seek recovery of reasonable costs in its GRC.
17. The Commission's Water Division shall audit all sale and condemnation proceeds received by San Gabriel from 1996 onwards.
18. San Gabriel shall, when the Commission adopts such a program, implement a Low Income Rate Program in Fontana Division identical to that to be authorized by the Commission in Application 03-04-025, for its Los Angeles Division.
19. This proceeding is closed.
This order is effective today.
Dated July 8, 2004, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
SUSAN P. KENNEDY
Commissioners
I dissent.
/s/ CARL W. WOOD
Commissioner
I reserve the right to file a dissent.
/s/ LORETTA M. LYNCH
Commissioner
