Ratesetting
22. Because of the small size of the Casmite system, it is impossible to compare proposed revenues for comparable service provided by other water suppliers in the general area.
23. For test year 2004, Casmite estimates operating expenses of $70,967, depreciation of $2,302, and taxes of $1319, or a total of $74,588. At current rates, Casmite estimates only $22,436 in operating revenues during test year 2004, producing a net operating loss of $51,152.
24. With one exception, Casmite's proposed levels of expenses for test year 2004 are reasonable. With a minor change for taxes ($519 instead of $1319), we accept $73,788 as the operating expenses for test year 2004.
25. Casmite has an estimated average depreciation reserve for test year 2004 of $92,633 and an average rate base of $75,616. Casmite's rate base will be reduced by $35,000, however, as a sanction imposed in this decision.
26. At present rates, Casmite would be receiving a negative 68% return on rate base (net operating loss of $51,152 ÷ average rate base of $75,616).
27. The record does not support a rate of return based on an operating margin of 20%.
28. Casmite's operation without a CPCN and avoidance of rate review for at least since 1994 warrants a reduction of the rate of return range authorized for Class D water companies in D.92-03-093. Had Casmite been subject to the Commission's ratesetting authority during this period, rates would have gradually risen over time, providing more revenues to the company and enabling customers to adjust their water use and budgets accordingly.
29. A 9.7% rate of return under the circumstances of this case provides a constitutionally acceptable, reasonable, and just rate of return for Casmite. To adequately sanction Casmite for its impermissible operation without a CPCN, mitigate rate shock, and reduce adverse community impacts, this rate of return should be phased in over a four-year period commencing with test year 2004.
30. Casmite's proposed rate design, modified as necessary by the determinations made in this decision, satisfies our criteria set forth in D.86-05-064.
