17. Comments on the Proposed Decision

The proposed decision of the ALJ in this matter was mailed to the parties in accordance with Section 311(d) Pub. Util. Code and Rule 77.1 of the Rules of Practice and Procedure. Timely comments were filed by Apple Valley and ORA and reply comments were filed by both on November 14, 2005. After reviewing the comments appropriate changes have been made in this decision. Several specific comments warrant discussion.

Escalation Rates.

Apple Valley commented (p. 1) that the proposed decision incorrectly requires the use of specific escalation rates to forecast the test year. We clarified the discussion to indicate that historical data used to forecast a test year must be escalated, and here, we adopt ORA's proposed escalation rates to adjust 2004 recorded data -where it was used - to estimate 2005 and then test year 2006. The rate case plan does define how to adjust from the test year to later years: here Apple Valley is correct. This decision is consistent with the rate case plan. Although parties have discretion on how they forecast the test year, they must be persuasive to justify their proposal and if recorded data is used it must be escalated to forecast the test year. Subsequent years between rate cases are formulaic.

Insurance

ORA comments (pp. 4-5) on escalation are the opposite of Apple Valley's: that we erred for example in not escalating historical insurance costs when we instead relied on Apple Valley's broker quotes. In fact the estimate for insurance expense was a reasonable exception to trending historical costs because the trend was below the most recent recorded costs. ORA repeats its "hearsay" concern which should have been raised at hearing.

Rate of Return

Apple Valley's comments (p. 5) suggest that we criticized it unfairly regarding risk premium analysis. We adopt a 30 basis-point allowance not Apple Valley's proposed 90 points and remind them that 30-points now (or any future allowance) must be justified. We are not critical that it made the requests - we are not persuaded this time that either a reasonable return or an added premium are as high as proposed by Apple Valley's witnesses. Our discussion goes to avoiding any presumptions that a premium will be automatic in the future.

New Wells

In its comments (pp. 8-10) Apple Valley objects to the description of the 75%-25% split of the cost for new wells. In its comments, but not in the cited transcripts or Ex. 7, Apple Valley indicates that it wants 100% of the costs in rate base (erroneously calling it "company-funded") until advances are received from developers. Apple Valley further states they included these costs in the comparison exhibit's rate base. This is not reasonable: any cost included in rate base - even temporarily - is ratepayer funded, not company-funded. Our intention is that Apple Valley bears the risk for 75% of any new well construction in 2006 and 2007 prior to recovering advances from developers. We have therefore adjusted test year rate base. Otherwise, Apple Valley has no incentive to recover advances if all costs are initially included in rate base. ORA's comments (p. 6) propose that the decision should exclude the back-up generator for Well #33 from rate base too. We do not make that adjustment because the generation is not solely for new customer benefit. In Reply comments, ORA agrees to Apple Valley's inclusion of 75% of the costs in rate base, but in this decision we do not accept this aspect of the stipulation. Apple Valley states that these wells will be "company funded and therefore in rate base" which is incorrect: rate base is ratepayer funded through depreciation and cost of capital. We therefore exclude 75% of the costs from rate base so the costs will be funded by the company until offset by recovery of advances for new development. Because 25% of the total cost is included in rate base, Apple Valley has an allowance for those wells projected to be completed in 2005.

Apple Valley's comments include an eight-point description of the stipulation which does not otherwise exist in the record and we will not allow post-submittal record creation. We reject this portion of the comments as inappropriate out-of-time argument.

Depreciation

ORA's comments repeat its argument to exclude depreciation expense from working cash. It is not an error for the Commission to follow an adopted standard practice. ORA's concerns should be addressed elsewhere, with proper notice and due process, for all affected parties if we are to consider changing a standard practice.