ALJ/CMW/jt2 Mailed 3/6/2006
Decision 06-03-015 March 2, 2006
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking on the Commission's Own Motion to Develop Rules and Procedures to Preserve the Public Interest Integrity of Government Financed Funding, Including Loans and Grants, to Investor-Owned Water and Sewer Utilities. |
Rulemaking 04-09-002 (Filed September 2, 2004) |
OPINION ADOPTING RULES TO GOVERN THE RECEIPT AND
USE OF ALL FUTURE STATE GRANT FUNDS RECEIVED BY
ALL CLASSES OF REGULATED WATER UTILITIES
TABLE OF CONTENTS
Title Page
OPINION ADOPTING RULES TO GOVERN THE RECEIPT AND
USE OF ALL FUTURE STATE GRANT FUNDS RECEIVED BY
ALL CLASSES OF REGULATED WATER UTILITIES 1
1. Summary 2
2. Background - Procedural History 4
3. Eligibility for Future State Grant Funds 6
4. Accounting and Ratemaking Rules 9
4.1 Recording Future State Grant-Funded Plant 9
4.2 Operating Expenses, Administrative and General Expenses,
and Taxes 12
4.3 Depreciation 13
5. Construction of State Grant-Funded Plant 14
6. Gain on Sale of State Grant-Funded Plant 16
7. Sale to Public Water Provider 20
8. Sale to an Entity Other Than Regulated Water Utilities or Public Water Provider 21
9. Notification to the Commission 21
10. Comments to the Draft Decision 22
11. Assignment of Proceeding 23
Findings of Fact 23
Conclusions of Law 28
ORDER 28
Appendix A - Rules for the Accounting of Proposition 50 Grant Funds
Appendix B - Summary of Prop 50 Grant Programs Open to Regulated Utilities
OPINION ADOPTING RULES TO GOVERN THE RECEIPT AND
USE OF ALL FUTURE STATE GRANT FUNDS RECEIVED BY
ALL CLASSES OF REGULATED WATER UTILITIES
1. Summary
This decision adopts rules that shall govern the accounting and ratemaking treatment for all future state grant funds received by all classes of regulated water utilities. With the passage of Proposition 50 - The Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002 (Proposition 50), for the first time California's investor-owned water utilities applied for state grant funds. Receipt of these funds by Commission-regulated water utilities will allow the utilities and their customers to benefit by providing cost-free funds for needed investments in water supply, treatment, and security. Under Proposition 50, regulated water utilities can apply to the California Department of Health Services (DHS) and the California Department of Water Resources (DWR) for approximately $430 million in grants.
The draft decision proposed to adopt rules specific to the receipt of Proposition 50 funds. By Assigned Commissioner's Ruling (ACR) on January 26, 2006, the scope of the decision was expanded to adopt rules for all future state grant funds received by all classes of regulated water utilities. This change is within the scope of the rulemaking and advances the objectives of our Water Action Plan adopted December 15, 2005. The change is made in response to the numerous new bond measures recently proposed by Governor Arnold Schwarzenegger under his infrastructure plan and set forth in Assembly and Senate bills, AD 1839 (Laird) and SB 1166 (Aanestad and Machado), Flood Protection and Clean, Safe, Reliable Water Supply Bond and Financing Acts of 2006 and 2010.1
Pursuant to Article XII, Section 6 of the California Constitution, the Public Utilities Code, and our own rules and regulations, the Commission prescribes all accounting and ratemaking practices for investor-owned water utilities.2 The rules we adopt here are designed to preserve the public interest integrity of future state grant funds by ensuring that investor-owned water utilities and their shareholders will not be able to profit in any way through the receipt of public funds. Our rules meet the objective we set in this rulemaking, that "Utilities should not receive a windfall nor should shareholders benefit from grant-funded facilities even if, years later, the utility itself or the individual, grant-funded facility is subsequently leased or sold." (R.04-09-002, page 2.)
The Division of Ratepayer Advocates (DRA) requests that a new rulemaking be opened to develop a standardized set of rules for government-financed loans, as discussed in the original rulemaking, and that in the interim, the rules determined in this rulemaking be applied. We do not adopt this proposal but do direct that our Water Division incorporate the development of draft rules governing government-financed loans in our next rulemaking regarding the regulation of water utilities.
1 All parties were given notice of this change in a January 26, 2006 ACR and afforded the opportunity to file comments on whether there is a need to further develop the record. The California Water Association (CWA) and Park Water Company (Park) filed comments supporting the change in scope of the March 21, 2005 Scoping Memo and Ruling; no party filed comments objecting to the change or requesting to further develop the record.
2 Specific Public Utilities Code Sections applicable to this proceeding are: Section 451, which requires the Commission to set just and reasonable rates for utilities; Section 770(b) which requires that the Commission set standards consistent with those of DHS; Section 790, which provides for the disposition of net proceeds from the sale of utility property; and Section 851, which requires Commission authorization for the encumbrance or disposition of utility property.
