XVI. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Bertram D. Patrick is the assigned ALJ in this proceeding.
1. The Coastal Water Project or an alternative water supply source is needed for CalAm to comply with SWRCB Order 95-10.
2. The SWRCB Order 95-10 requires CalAm to develop and implement a plan to replace 10,730 acre feet per year of water it historically diverted from the Carmel Valley Aquifer.
3. The 10,730 acre feet per year of water to be replaced amounts to approximately 69% of CalAm's water supply for its Monterey District.
4. In August 2002 the Commission issued its long-term contingency plan (commonly referred to as Plan B) recommending the construction of a desalination facility and ASR project for the Monterey District.
5. As directed by the Commission in D.03-09-022, CalAm filed the instant A.04-09-019 and undertook steps to proceed with the Coastal Water Project to comply with the SWRCB Order 95-10 and the Endangered Species Act.
6. The Coastal Water Project, which is currently estimated to cost $191 million, could produce a near doubling of current rates.
7. For purposes of mitigating the rate impact of the Coastal Water Project, CalAm proposes a Special Request 1 Surcharge to recover preconstruction costs, and a Special Request 2 Surcharge to pre-collect revenue to offset the cost of the Coastal Water Project, or alternative supply solution.
8. Interest charges are accruing on $8.7 million in preconstruction costs incurred through 2005. Also interest charges will be accruing on 2006 and 2007 preconstruction costs, thereby increasing overall project cost and contributing to rate shock.
9. If the estimated $191 million in project costs is implemented in rates at one time after the project is completed, rates will nearly double, thereby causing rate shock to customers.
10. CalAm requests recovery of $8,663,334 in preconstruction costs incurred through 2005. This amount comprises: (1) $5,670,073 for engineering and environmental costs; (2) 1,353,831 in public outreach costs; and (3) 1,639,429 for other costs.
11. DRA recommends: (1) recovery of engineering and environmental costs be deferred until it hires a consultant to assist DRA in its review; (2) recovery of public outreach costs be no more than $160,000; and, (3) other costs of $1,639,429 be approved for recovery after a CPCN is issued.
12. IRWUG seeks a limited exemption from the surcharges for golf course irrigation water supplied by CalAm to Del Monte Forest golf courses, which include the Pebble Beach Company, the Monterey Peninsula Country Club, the Cypress Hills Country Club, and the NCGA Poppy Hills Golf Course.
13. Beginning September 2007, Del Monte Forest golf courses do not expect to use CalAm water for golf course irrigation after the Water Reclamation Expansion Project goes into service.
14. IRWUG seeks an exemption from the surcharges because the price Del Monte Forest golf courses pay MPWMD for reclaimed water is tied to the price paid to CalAm for potable water, and being subject to the surcharges as part of the CalAm tariff rate will significantly increase the cost of reclaimed water used to irrigate the golf courses.
15. Since the proposed new surcharges will be a percentage of the customer's bill, and the PAR customer already receives a lower bill on account of being exempt from the customer charge, PAR customers will pay lower surcharge amounts.
1. CalAm's need to comply with the SWRCB Order 95-10 and the estimated $191 million cost of a project to comply with that order creates special circumstances warranting a departure from standard rate making practice, which allows project costs to be included in rates only after the project is found to be "used and useful."
2. It is in the public interest to implement CalAm's proposed Special Request 1 Surcharge effective January 1, 2007, because it will reduce overall project cost and help reduce rate shock.
3. To allow for a more gradual ramping-up of rates, implementation of Special Request 2 Surcharge should not coincide with the implementation of the Special Request 1 Surcharge.
4. Given that Monterey District customers will experience a significant GRC rate increase in January 2007 in addition to the Special Request 1 Surcharge, implementation of the Special Request 2 Surcharge should be deferred to coincide with issuance of the CPCN for the Coastal Water Project, or alternative supply solution.
5. The reasonableness of the $5,670,073 requested for engineering and environmental costs through 2005, should be addressed in hearings to be scheduled for 2007. These costs should remain in the memorandum account until the reasonableness review has been completed.
6. The $1,353,831 in costs expended for public outreach through 2005 are found to be reasonable, and CalAm should be authorized to recover this amount booked in the memorandum account.
7. The $1,639,429 in other costs expended through 2005 are found to be reasonable and CalAm should be authorized to recover this amount booked in the memorandum account.
8. CalAm's request to be allowed to earn its authorized rate of return on preconstruction costs booked in its memorandum account should be denied for the reason that it remains unclear at this time when (or whether) any plant construction will commence. All preconstruction costs should be booked in an interest bearing memorandum account and accrue interest at the 90-day short term commercial rate.
9. DRA should be authorized to extend its consultant's Phase II contract to assist DRA in its review of CalAm's engineering and environmental costs incurred through 2005, and in 2006 and 2007.
10. CalAm should be required to issue its report on reasonableness of 2006 preconstruction costs no later than March 30, 2007.
11. CalAm should be required to issue its report on reasonableness of 2007 preconstruction costs no later than March 30, 2008.
12. DRA should be required to issue its report on reasonableness of CalAm's engineering and environmental costs through 2005, no later than June 30, 2007, for hearing and decision by year-end 2007.
13. DRA should be required to issue its report on reasonableness of CalAm's 2006 and 2007 preconstruction expenses no later than June 30, 2007 and June 30, 2008, for hearing and decision by year-end 2007 and 2008, respectively.
14. IRWUG's request for a special tariff for golf course irrigation water should be denied because this is a contract matter which should be resolved between IRWUG, MPWMD, and the Pebble Beach Company.
15. CalAm should be authorized to file tariff sheets to implement the Special Request 1 Surcharge effective January 1, 2007.
16. CalAm should be authorized to file tariff sheets to implement the Special Request 2 Surcharge after a CPCN is issued for the Coastal Water Project or alternative supply solution.
17. Collection of the Special Request 1 Surcharge should cease after all preconstruction costs are recovered.
18. Collection of the Special Request 2 Surcharge should cease after the project adopted by the Commission, to provide a long-term supply solution to the Monterey District, is completed.
19. Since PAR customers will pay lower surcharge amounts compared to other customers, Pub. Util. Code § 739.8(b) has been complied with.
IT IS ORDERED that:
1. California-American Water Company (CalAm) is authorized to implement the proposed Special Request 1 Surcharge commencing January 1, 2007. Initially, the surcharge shall be 4%, then beginning July 1, 2007, shall increase to 7%. Beginning January 1, 2008, the surcharge shall increase to 10% and remain in place until the full amount authorized for preconstruction costs is collected.
2. CalAm is authorized to implement the proposed Special Request 2 Surcharge after the Commission issues a Certificate of Public Convenience and Necessity (CPCN) for the Coastal Water Project, or alternative long-term supply solution, in Phase II of this proceeding. Initially, the surcharge shall be 15%, increasing to 30%, 45%, and 60%, respectively, on January 1 and July 1 of each year, and shall continue at the 60% level until the project is completed.
3. The Division of Ratepayer Advocates (DRA) is authorized to hire a consultant to assist in the review of CalAm's engineering and environmental costs through 2005, 2006, and 2007. The cost of the consultant shall be reimbursed by CalAm and be charged to project costs.
4. DRA's request that the reasonableness review of CalAm's engineering and environmental costs through 2005 be deferred until its consultant has had the opportunity to review these costs is granted.
5. DRA shall issue its report on the reasonableness of CalAm's engineering and environmental costs through 2005, no later than June 30, 2007.
6. CalAm shall issue its report on the reasonableness of its 2006 preconstruction costs no later than March 31, 2007. DRA shall issue its report on these costs no later than June 30, 2007. Thereafter, the assigned Administrative Law Judge (ALJ) shall convene a prehearing conference and hold hearings so that a proposed decision is issued on the reasonableness of CalAm's engineering and environmental costs through 2005, and preconstruction costs for 2006, before year-end 2007.
7. CalAm shall file a new application and issue its report on the reasonableness of its 2007 preconstruction costs, no later than March 31, 2008. DRA shall issue its report on these costs no later than June 30, 2008. Thereafter, the ALJ shall convene a prehearing conference and hold hearings so that a proposed decision on the reasonableness of 2007 preconstruction costs is issued before year-end 2008.
8. As part of the above reasonableness reviews, the adopted surcharges shall be reviewed and adjustments made, as necessary.
9. As discussed herein, CalAm is authorized to recover through the memorandum account $1,353,831 in public outreach costs and $1,639,429 in other costs, incurred through 2005.
10. CalAm is authorized to file new tariffs to implement the Special Request 1 Surcharge to commence on, or after, January 1, 2007. The tariff shall become effective following approval by Water Branch.
11. CalAm is authorized to file new tariffs to implement the Special Request 2 Surcharge to commence after a CPCN is issued for the Coastal Water Project, or alternative supply solution, in Phase II of this proceeding.
12. IRWUG's request for a special tariff for golf course irrigation water is denied.
13. Phase I of this proceeding shall remain open for purposes of reviewing the reasonableness of CalAm's engineering and environmental costs through 2005, and preconstruction costs for 2006 and 2007.
14. Phase II of this proceeding shall remain open to select a long-term water supply solution for Monterey District and approve the Environmental Impact Report currently under preparation.
This order is effective today.
Dated December 14, 2006, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
************ SERVICE LIST ***********
Last Update on 11-OCT-2006 by: LIL
A0409019 LIST
APPENDIX A
Fred L. Curry 5 |
Paul G. Townsley |
Jody S. London |
Lenard G. Weiss |
(END OF APPENDIX A)
