11. Depreciation in Working Cash
Apple Valley presented its working cash calculation for inclusion in rate base consistent with the long-standing Standard Practice U-16. ORA proposed a departure to exclude depreciation expense from the working cash calculations.38 ORA cites D.04-09-061 as adopting this adjustment. 39 ORA testified that it believes depreciation is "... not an out-of-pocket expense. Therefore, it should not be allowed in working cash."40
ORA appears to rely on the discussion where the Commission stated:
We agree with ORA that cash working capital should not include depreciation since this expense does not require Pacific to make a cash outlay. However, Standard Practice U-16 is contradictory about whether depreciation should be included. It appears Pacific was in compliance with Standard Practice U-16 when it followed the numerical example described in the detailed methodology. Therefore, we clarify that for the current and future financial periods Pacific [Pacific Bell, now SBC] shall no longer include depreciation in its cash working capital calculations, regardless of whether the simplified or detailed method is employed. (D.04-09-061, p. 58.)
However, the quoted discussion in D.04-09-061, which would otherwise support ORA's contention, is not reflected in the Conclusions of Law, nor are there supporting Findings of Fact, or an Order that directs the respondents to implement ORA's proposal based on the discussion. Specifically, in D.04-09-061 the Commission's Conclusions of Law did not determine that the working cash was in error and did not conclude depreciation should be excluded. Conclusions of Law 36 through 38 in D.04-09-061 appear instead to adopt the applicant's position, not ORA's, and found Pacific in compliance with the standard practice.
36. The procedures set forth in Standard Practice U-16 guides the calculation of "cash working capital." Pacific followed these procedures.
37. The TURN/ORA proposal to set Pacific's working capital figure at zero is unreasonable because it removes cash working capital from rate base on the basis of alleged errors or complexities in the calculation.
38. Since we find no "special circumstances" that justify a deviation from Standard Practice U-16, it is reasonable to adopt only the rate base changes concerning cash working capital proposed by Pacific and described herein. Moreover, it is reasonable to modify the IEMR regulatory books for each of the years in this audit to reflect the changes as proposed by Pacific. (Emphasis added.)
Therefore we cannot rely on ORA's interpretation of D.04-09-061, and we decline to make the adjustment in the absence of precedent, or other persuasive argument by ORA. ORA otherwise found that Apple Valley complied with Standard Practice U-16 and correctly calculated working cash. We will therefore only adjust working cash to reflect the flow-through of other adopted adjustments, such as the exclusion from rate base of 75% of the capital expenditures on new wells, discussed above.
38 Ex. ORA-1, p. 10-1.
39 D.04-09-061 dated September 23, 2004, in Rulemaking 01-09-001, Order Instituting Rulemaking on the Commission's Own Motion to Assess and Revise the New Regulatory Framework for Pacific Bell and Verizon California Incorporated and Investigation 01-09-002 Order Instituting Investigation on the Commission's Own Motion to Assess and Revise the New Regulatory Framework for Pacific Bell and Verizon California Incorporated.
40 Transcript, p. 283, lines 23 - 25.
