III. Modifications to the Existing Rate Case Plan
A. Single Rate Case for Multi-District Utilities
The OIR proposed that all multi-district water utilities file a single general rate case for all their districts at the same time and once every three years. In addition, the OIR proposed that the length of the rate case plan be 14 months for single-district applications and 20 months for multi-district applications. Under the OIR, we further proposed that the 14-month and 20-month time frames would start with the proposed application's submission date and end with the expected effective date of GRC rates.
The Joint Parties4 agree to very few details regarding our proposal. Their recommendation on the RCP schedule is limited to very minor changes to the proposed 14-month GRC processing schedule.
Regarding our proposal for a single rate case for multi-district utilities, DRA states that it would prefer for the Commission to continue to process GRCs under the existing RCP adopted in D.04-06-018. DRA's position is primarily based on its opposition to single tariff rate design for multi-district utilities. According to DRA, a single rate case for multi-district utilities may somehow encourage the Commission to adopt a policy in favor of single tariff rate design. We see no such connection. DRA also states that, if the Commission decides to move ahead on multi-district GRCs, the Commission should establish the new RCP as a pilot project. On the actual sequence for utilities to file their GRCs, DRA suggests the Commission modify the filing sequence of certain utilities, namely Great Oaks Water and Valencia. In addition, DRA states that California American Water Company should file a separate GRC on a 14-month schedule for its Monterey District. Finally, regarding GRC updates, DRA suggests in its reply comments that the Commission retains the existing system under D.04-06-018 because, according to DRA, it has worked well.
In its comments, the California Water Association (CWA)5 states three main concerns regarding the proposal for single multi-district filings. CWA notes that, in some instances, the proposed RCP extends beyond the three-year cycle required under Section 455.2. CWA also is concerned that, due to the proposal to increase the length of the GRC processing schedule to 20 months, the Commission must modify the GRC schedule to accept, with certain restrictions, updated data. Lastly, CWA points out that, in its opinion, the proposed RCP creates inefficiencies by processing some of the smaller Class A water utilities, namely San Gabriel Valley Water Company (San Gabriel), under the same
20-month schedule as the larger Class A water utilities. As a partial solution to its concerns, CWA proposes several modifications to the proposed RCP, including changing the GRC filing schedule to provide for a one-year transition period to the new RCP and processing the four single district utilities (Great Oaks Water, San Jose Water, Suburban Water Systems, Valencia Water) and the two district companies (San Gabriel and Park Water Company) on a slightly modified 14-month schedule while processing the three largest multi-district utilities on the 20-month schedule. Lastly, CWA suggests shortening the proposed 20-month schedule by two months to 18 months. California American Water Company filed separate comments on these issues largely agreeing with CWA.
Park Water Company's (Park) comments state that the OIR incorrectly describes the relationship between Park and Apple Valley. Apple Valley is not a district of Park. Instead, Apply Valley is a wholly-owned subsidiary of Park and a separate Class A water utility. In addition, Park points out that because Park and Apple Valley are separate utilities and because Apple Valley contracts out its regulatory work to Park, combining rate cases with Apple Valley would prove difficult. According to Park, its regulatory staff does not have the resources to prepare two general rate cases simultaneously.
The Monterey Peninsula Water Management District (MPWMD) has concerns about a multi-district filing by California American Water Company, which would include the Monterey District, because such a filing might minimize the attention given to the complex issues in the Monterey District. For certain regulatory-compliance reasons, MPWMD also requests that instead of scheduling California American Water Company's next general rate case for July 2009, the Commission should schedule the rate case for January 2008.
San Gabriel urges the Commission to continue to permit it to file separate rate cases for its two divisions, the Los Angeles County Division and Fontana Water Division. San Gabriel also argues that the 20-month schedule is too long because, among other reasons, at the end of the 20 months, the data will be stale. In addition, San Gabriel states that, by adopting the proposed RCP, the Commission will violate Section 455.2 by failing to provide San Gabriel with a rate increase within three years.
We conclude that the existing RCP schedule for filing GRCs should be revised. The adopted schedule is set forth in Section VI of the new RCP, attached hereto as Appendix A. Our adopted schedule is based on our consideration of the comments and reply comments filed by parties and is consistent with the Water Action Plan 2005 by striking the appropriate balance between capturing the efficiencies gained from consolidating certain districts into a single rate case and continuing to process the rate cases as expeditiously as possible. This schedule will not be adopted as a so-called "pilot project," as suggested by DRA. As the parties gain experience with this schedule, they may identify potential improvements and should notify the Commission's Water Division at the appropriate time so that we can consider further refinements to the RCP consistent with the Water Action Plan 2005.
Our adopted schedule permits Park and Apple Valley to file separate GRCs under the 14-month schedule. Park and Apple Valley are separate Class A water utilities. Accordingly, we conclude that combining Park and Apple Valley will not significantly reduce the total number of GRC proceedings.
We further conclude that, after a transition period, San Gabriel will file a consolidated GRC for its Fontana Water Division and its Los Angeles County Division under the 20-month schedule. Unlike Park and Apple Valley, San Gabriel's Fontana Water and Los Angeles County Divisions are part of one Class A water utility.
The remaining multi-district companies, California American Water Company, California Water Service Company, and Golden State Water Company, will file their GRCs under the 20-month schedule. We will gradually consolidate all districts into one GRC for each utility during a transition period. At this time, we do not believe a shorter schedule, such as the 18-month schedule proposed by CWA, allows sufficient time to process a multi-district GRC.
A number of parties expressed concern about delays beyond the time frame contemplated by Section 455.2. Our gradual phase-in to the single multi-district rate case schedule will alleviate these delays. While delays may still exist beyond the three-year cycle set forth in Section 455.2(c), the length of such delays is short and we also adopt a procedure for rate relief during these delays. This procedure is described herein at III(A)(1).
Regarding the Monterey District, parties suggest that the issues presented by this district are too complex to consolidate with other districts but that consolidation may be appropriate in the future. Under the adopted RCP, we will gradually consolidate the Monterey District with the other districts while ensuring that the issues presented by this district still receive the appropriate attention.
Our adopted schedule also reflects the suggestions of parties regarding the time necessary to complete certain required GRC tasks. These revisions are relatively minor and require no further elaboration.
Lastly, to the extent that the RCP schedule requires minor modifications to address mergers, acquisitions or the entry of new water utilities, the Water Division has authority to initiate changes to the RCP schedule through a proposed Resolution for Commission consideration.
The proposed RCP addressed the issue of rate adjustments under Section 455.2(c) during the transition to the new RCP. Our proposal in the OIR was as follows: for districts where the last review of rates was more than three years earlier, the utility may seek an annual rate change, subject to refund and limited to the rate of inflation, by a Tier 2 advice letter.
In response, CWA states that the proposal to limit interim rate relief during the transition period to the rate of inflation is inadequate based on soaring costs in some water service areas. Moreover, according to CWA, the transition to the new RCP schedule will result in certain companies filing GRCs beyond the three-year filing requirement set forth in Section 455.2(c). According to CWA, such delay can only occur when the utility and the Commission mutually waive the three-year filing requirement. CWA suggests that we permit water utilities that fall within this delay period to file GRCs during CWA's so-called one-year transition period.
In its reply comments, DRA disagrees with CWA's proposal for handling the transition period. Instead, DRA suggests that the Commission direct the Class A water utilities and DRA to work together to develop a proposal to address delays beyond the three-year GRC filing cycle. DRA notes that, in Ordering Paragraph 3 of D.04-06-018, we addressed this transition problem by ordering the parties to devise a mutually agreeable proposal within 60 days of the date of issuance of that decision.
As stated above, we conclude that our new RCP schedule will further the Water Action Plan 2005's objective of streamlining the Commission's decision-making process by requiring a single rate case for each of the three largest multi-district Class A water utilities and San Gabriel while permitting the remaining Class A water utilities to file single district GRCs. Under the new RCP, however, some districts may be scheduled for a GRC beyond the three-year filing cycle set forth in Section 455.2(c).
We conclude that companies experiencing a delay in their GRCs under our new RCP may seek a rate modification, subject to refund as set forth below, via an advice letter.6 Our adopted procedure is set forth at II(B) of the RCP. Section II(B) also sets forth the procedure for seeking permission to forego a GRC filing. We will not limit the rate changes sought in these filings to the rate of inflation. However, interim rates under Section 455.2(c), when approved, will be subject to refund and shall be adjusted upward or downward back to the effective date of the interim rates upon the adoption of final rates by the Commission at the conclusion of a GRC scheduled under the RCP. This procedure will only apply during our transition to the new RCP when the new RCP plan delays a water utility's GRC beyond the three-year cycle set forth in Section 455.2(c). We decline to adopt CWA's suggestion to permit utilities to file applications. Applications will unduly complicate the RCP schedule and create numerous inefficiencies. Furthermore, the advice letter process addresses all of CWA's concerns. Lastly, during the transition to the new RCP, the assigned ALJ may modify the time schedule for processing GRCs to accommodate the workload concerns or other needs of the parties.
During our transition to the new RCP, we will review all GO for (1) California Water Service Company with its July 1, 2007 GRC; (2) San Gabriel with its July 1, 2007 GRC; (3) Golden State Water Company with its July 1, 2008 GRC; and (4) California American Water Company with its January 1, 2010 GRC filing. Consistent with our standard procedures, all customers potentially impacted by these comprehensive GO filings must be appropriately noticed of any proposed rate changes and any proposed changes to the GO must be adequately supported by evidence in the record. We anticipate that a utility may seek rate changes related to GO in districts not undergoing a GRC review. In such instances, the utility may file an advice letter to implement any Commission-approved rate changes.
3. Updates to Recorded Information in Pending GRC Application
In the OIR, we proposed not to modify the existing process set forth in D.04-06-018 for applicants to offer updates to recorded data in a pending GRC application. Under our existing process, within 45 days of a GRC filing, an applicant can submit more recent recorded data. According to the existing RCP, any updates must be restricted to the data included in the original application or testimony. The existing RCP makes clear that any new or additional items or forecasted costs are not updates to recorded data and will not be accepted. The existing RCP also provides that, under extraordinary circumstances, a water utility may seek discretionary post-application modifications.
CWA points out that the 20-month schedule is six months longer than the existing processing schedule. Accordingly, it proposes that we permit water utilities to update their GRC applications if the recorded year-end data is significantly different from the estimated data included in the GRC application or if data significantly changes the utility's case. CWA claims that updated data will produce more accurate rates that more closely reflect the true cost of utility service and, in support of this goal, points to the Water Action Plan 2005's principle of reasonable rate and viable utilities.
DRA disagrees with CWA. In reply comments, DRA contends that the existing procedures set forth in D.04-06-018 are adequate.
San Gabriel suggests that it is impractical to allow parties to continuously change the data in a pending application but also urges the Commission to permit updates so that our decisions are not based on stale information.
We conclude that, with the exception of certain specific expenses, updates will be permitted consistent with the existing procedure set forth in D.04-06-018. These specific expenses include employee benefits (all medical, dental, pension, and other benefits), insurance, and Sarbanes-Oxley compliance costs. Regarding these specific expenses, the utility may file a motion to submit updates following the filing of the GRC application to include both year-end recorded data and more recent estimates of these specific expenses. This result strikes the appropriate balance between the principle of reasonable rates and viable utilities and the policy goal of streamlining Commission regulatory decision-making, as set forth in the Water Action Plan 2005. Consistent with the Plan, this process is fair as it allows the utilities an opportunity to seek post-application modifications when changes are material and ensures that other parties have an opportunity to indicate whether they have adequate time to analyze the new data.
B. Cost of Capital Proceedings
The OIR proposed that a separate cost of capital proceeding be establish on a parallel track to a company's GRC and that the Commission address all Class A water utilities' cost of capital applications for a given year on a consolidated basis. The OIR also proposed to give Class A water utilities the option to request modifications to their cost of capital annually. Finally, under the OIR, cost of capital applications would be due May 1 of the year prior to the Test Year.
DRA suggests that cost of capital continue to be addressed within the utility's GRC. DRA expresses concern about the reduced ability to negotiate settlements in a GRC in the absence of issues related to cost of capital. DRA also expresses concern about increased workload should utilities file cost of capital applications each year and suggests that cost of capital results may not be timely since the GRC and cost of capital proceedings will proceed on separate tracks.
According to CWA, the Commission should continue to address cost of capital within individual GRC proceedings. Should consolidation be adopted, CWA suggests that the five publicly-traded (and soon-to-be publicly traded) companies be consolidated in one proceeding and the remaining companies continue to have cost of capital addressed in their individual GRC applications. California American Water Company filed separate comments on this issue largely agreeing with CWA.
San Gabriel states that one consolidated cost of capital proceeding cannot effectively address the variety of capital models and other financial variations among Class A water utilities.
MPWMD supports a consolidated cost of capital proceeding. MPWMD points out that California American Water Company's Monterey District pays a high cost of capital and MPWMD finds that a consolidated proceeding might bring down the cost of capital.
Park also opposes consolidation of cost of capital applications for Class A water utilities. Park argues that consolidated cost of capital proceedings will hinder the ability of utilities to present company-specific risk data. If the Commission adopts a consolidated cost of capital schedule, Park suggests that March 1 be used as the filing date for the consolidated cost of capital applications when the GRC seeks new rates starting January 1.
The Joint Parties make no recommendation on this issue.
We have carefully considered the recommendations by parties on this topic. Although the parties present various reasons for us to reject the consolidation of cost of capital applications, we conclude that consolidation of cost of capital proceedings will serve to streamline our regulatory process, consistent with the objectives of the Water Action Plan 2005. In these consolidated proceedings, we intend to consider company-specific factors. Accordingly, the concerns of parties that company-specific risks will be overlooked are unfounded.
Based on the comments by parties, we adopted a modified version of our original proposal. In response to concerns that one consolidated cost of capital proceeding would not effectively address the variety of capital models and other financial variations among Class A water utilities, we adopt a RCP that reviews cost of capital in two groups. The three largest multi-district Class A water utilities7 are directed to file cost of capital applications on May 1, 2008 and on a triennial basis thereafter. The Commission will consolidate these three cases. In this way, similar companies with similar risks will present information to us at the same time. The parties shall include in this May 1, 2008 filing a proposal to annually update the authorized capital structure for the following two years. This mechanism will apply between triennial proceedings. The Commission will adopt such a mechanism in this May 2008 proceeding.
All the remaining Class A water utilities will file cost of capital applications on May 2009 and on a triennial basis thereafter. The Commission will consolidate these cases. The parties shall include in the May 2009 filing a proposal to annually update the authorized capital structure. This mechanism will apply between triennial proceedings. The Commission will adopt such a mechanism in this May 2009 proceeding.
The procedural schedule for these cost of capital proceedings will be determined by the assigned ALJ or assigned Commissioner at the first consolidated proceedings, in May 2008 and May 2009. The Commission will process these cost of capital proceedings in a timely fashion and promptly incorporate the results into pending or existing rates. The schedule will be set with the goal of having a final decision within six months.
C. Interim Rate Relief during a Pending GRC
The OIR suggested a new procedure to facilitate and expedite requests under Section 455.2(a) and (b) for interim rate relief during a pending GRC application. The proposal consisted of the following: (1) a motion by the applicant filed 60 days before the first day of the test year that addressed the extent the applicant was responsible for delay and setting forth its proposed interim rates, (2) a ruling by the assigned ALJ or assigned Commissioner in response to the applicant's motion addressing, among other things, whether the applicant contributed to any delay in the proceeding and the appropriateness of the interim rate proposal, and (3) assuming that the Presiding Officer finds that the applicant was not at fault for delay, the Presiding Officer would authorize the applicant to file an advice letter implementing these interim rates effective the first day of the test year, pursuant to General Order (GO) 96-B.
The Joint Parties make no recommendation on this matter.
CWA suggests that we further streamline our proposal for obtaining interim rates. Seeking to minimize all procedural hurdles associated with obtaining interim rate relief, CWA particularly objects to our proposal to the extent it requires a utility to "prove" that it did not contribute to the delay in adopting rates. CWA contends that our proposal is inconsistent with Section 455.2. According to CWA, Section 455.2 creates a rebuttable presumption that the utility did not cause the delay. Under CWA's proposal, a utility would file a Tier 1 advice letter seeking to implement interim rates effective automatically after 20 days unless a protest was filed. Park and San Gabriel generally agree with CWA.
DRA urges the Commission to retain the existing procedure under
D.04-06-018 for obtaining interim rate relief during a pending GRC. DRA objects to a procedure permitting an ALJ to approve the rate modification rather than, as required under D.04-06-018, the Commission in a formal decision. According to DRA, the proposal fails to conform to the requirement of Section 455.2 for Commission approval, not ALJ approval, of interim rates. DRA claims that CWA's proposal to authorize a rate change via an advice letter would contravene the requirements of Section 454 that rates be "justified" by a substantial showing.
Based on parties' comments, we conclude that certain modifications are warranted to our original proposal. To be clear, our adopted interim rate process only applies during a pending GRC when the applicant, another party, or the Presiding Officer anticipates that the Commission's decision will not be effective on the first day of the first test year in a general rate case application. We adopt this procedure pursuant to Section 455.2(a) and (b).
An applicant seeking interim rate relief under Section 455.2 is required to file a motion for interim rate relief on or before the date set for the filing of opening briefs unless a different date is designated by the Presiding Officer. During this time frame, any other party may also file a motion for interim rate relief. Responses to this motion will be permitted consistent with the Rules of Practice and Procedure. In addition, we direct the Presiding Officer to convene a status conference the first business day after parties file opening briefs. The Presiding Officer shall schedule this status conference in each GRC and the purpose of such conference will be to determine the need for interim rates and to adopt a procedure to ensure interim rates are filed via advice letter and approved in a timely fashion.
While CWA and others suggest that a motion is unnecessary and inefficient, we find the information provided in a motion and in any responses filed to such motion necessary for the Presiding Officer to make a specific finding on the delay issue as set forth in Section 455.2. For this reason, the motion shall address the degree, if any, that applicant was responsible for delay during the proceeding. As stated above, this requirement is necessary for the Presiding Officer to determine whether the delay was "due to actions by the water company," consistent with Section 455.2. Contrary to CWA's contention, Section 455.2 does not create a rebuttable presumption that the utility did not cause the delay. The basis for CWA's assertion is unclear. While CWA is correct that Section 455.2 does not specifically require that interim rates be established through a motion filed by an applicant, the statute does permit the Presiding Officer to establish a later-effective date for interim and final rates if delay is caused by the applicant. To make a finding on the cause of delay, evidence must be brought before the Presiding Officer. We determine that, consistent with our Rules of Practice and Procedure, a motion and responses to this motion are an effective way to bring evidence before the Presiding Officer.
The Motion shall also request the establishment of a memorandum account to track any possible refund amounts based on final rates.
In response to this motion, the Presiding Officer will issue a ruling. The ruling will determine whether the applicant was responsible for the delay in implementing rates, determine if the requested rates are appropriate for submission to the Commission via advice letter, and suggest a specific effective date for interim rates. The ruling will also direct applicant to establish a memorandum account to track any difference between the interim rates and the final rates in an advice letter filing.
As mentioned above, DRA continues to support the procedure established by D.04-06-018 that requires the ALJ to prepare a proposed decision on the issues of delay and interim rates to be approved by the Commission. We favor a more streamlined approach consistent with the objectives of the Water Action Plan 2005. DRA is concerned that our more streamlined approach may compromise our compliance with the statutory requirement that rates be "justified," as set forth in Section 454. Under our adopted procedure, interim rates will be implemented via advice letter,8 subject to refund. While our approach is a departure from D.04-08-016, it satisfies the statutory requirements set forth in Sections 455.2 and 454.
After the Presiding Officer issues a ruling on the motion for interim rate relief, we direct the applicant to file an advice letter consistent with the findings in the Presiding Officer's rulings. The applicant's advice letter filing will be effective according to the findings of the Presiding Officer's ruling. Under our adopted procedure and consistent with Section 455.2, the applicant's "interim rates shall be effective on the first day of the first test year in the general rate case application" as long as the Presiding Officer finds that applicant was not responsible for delay. In instances where there are large rate adjustments to be made at the time of implementing final GRC rates, the Commission will incorporate the time value of money that either the ratepayers or shareholders bore for the duration of the interim rate relief period.
We will continue a number of our current practices adopted under
D.04-06-018 regarding interim rates. Under Section 455.2, interim rate relief is limited to the "rate of inflation." In D.04-06-018, we adopted an index for determining the rate of inflation, the most recent 12-month ending change in the U.S. Cities CPI-U published by the U.S. Bureau of Labor Statistics. No parties commented on our proposal to rely on this index. Consistent with D.04-06-018, this index will be applied to all revenue requirement components except those items included in balancing accounts.
D. Rate Case Plan Waivers
Section 455.2(c) directs us to adopt a procedure for granting waivers to the requirement that water utilities file a GRC application every three years. Section 455.2(c) states, in pertinent part, "The plan shall include a provision to allow the filing requirement to be waived upon mutual agreement of the commission and the water corporation."
No procedure currently exists in the RCP for such waivers. In D.06-06-037, we invalidated the RCP waiver process adopted in D.06-02-010 because we determined that parties were not afforded adequate notice and opportunity to be heard on the waiver procedure adopted in our prior RCP proceeding,
R.03-09-005. In this OIR, we again proposed a procedure for obtaining such waivers.
The Joint Parties make two recommendations in response to our proposed RCP waiver procedure. The first recommendation addresses the procedure required under Section 455.2(c) to permit waivers to the triennial rate case cycle. In the OIR, we proposed that, should the water utility and the Commission (through the Executive Director) mutually agree to a waiver of the triennial GRC filing requirement, the water utility would be foreclosed from filing a GRC until its next scheduled GRC. The Joint Parties suggest that we permit a water utility to waive the triennial GRC filing for a period less than three years provided that written agreement exists between the water utility and DRA.
In response to the Joint Parties' comments, we will modify our proposal in the OIR. Under Section 455.2, the Commission can agree to permit the utility to file according to a schedule other than the triennial schedule set forth in the adopted RCP. While we do not anticipate that we would grant such requests unless special circumstances exist, we will provide for this possibility by removing the following language from the proposed RCP at Section V(1): "Granting of this request by the Executive Director will result in the waiver by the utility of rate changes until its next schedule rate case."
The Joint Parties' second recommendation addresses our proposal to authorize a water utility to waive its right to file an application and, instead, file its GRC via advice letter. The Joint Parties recommend that utilities only be permitted to file an advice letter in lieu of a GRC application under the requirements of our proposal in Section V of the RCP if written agreement exists between the utility and DRA to rely on the advice letter procedure outlined therein.
We agree that such a modification is necessary. The utility must seek the agreement of DRA prior to filing a GRC via advice letter filing.
The Joint Parties do not comment on any other aspects of our RCP waiver procedure. No other parties comment on this topic. Accordingly, except for the above modification, our proposal remains unchanged. We note, however, that Section 455.2 authorizes the Commission to agree to waivers in certain circumstances. We now delegate to the Executive Director, in consultation with Water Division, the authority to enter into and grant requests for the waivers set forth in Section 455.2(c). The procedures that utilities must follow to obtain such waivers can be found in Section V of the RCP.
E. Minimum Data Requirements
To streamline the formal discovery process during a GRC or a cost of capital proceeding, the OIR proposed standardized MDRs to be submitted as part of the utility's testimony in its GRC and cost of capital proceedings. We noted in the January 29, 2007 Scoping Memo that we would also consider whether the MDRs at Section II.G should direct the utility to demonstrate compliance with Section 10620 of the Water Code. Section 10620 of the Water Code requires utilities, and others, to prepare Urban Water Management Plans.
The Joint Parties make no recommendation on any matter related to the MDRs. DRA supports the MDRs but urges the Commission to incorporate portions of the Master Data Request into the MDRs or continue to require compliance with the Master Data Request. DRA submits revisions to the proposed MDRs to reflect the incorporation of critical portions of the Master Data Request. DRA also supports our recommendation to include a provision regarding Section 10620 compliance.
CWA generally supports the proposed MDRs but finds the Master Data Request to be unnecessary with the addition of the MDRs. CWA asks that we clarify whether utilities will be required to submit both under the new RCP. CWA also asks us to clarify whether the MDRs constitute the standard by which a proposed application will be deemed complete for filing and for purposes of issuance of the required deficiency letter. In addition, CWA claims that the proposed MDR on "Conservation and Efficiency" prematurely sets a specific percentage reduction for all utilities and fails to consider the significant differences among utilities.
MPWDM generally supports the MDRs but also seeks clarification on the status of DRA's Master Data Request.
We conclude that the MDRs, attached hereto at Appendix A (RCP Attachment 1 and Attachment 2) will apply to GRC applications and cost of capital proceedings, respectively. We further clarify that DRA's Master Data Request is not incorporated as part of the MDRs. While we appreciate DRA's argument that it will need additional information beyond the MDRs, DRA will continue to have the opportunity to ask for supplementary information during formal discovery. We expect parties to work cooperatively during discovery. Unreasonable delay in responding to discovery is not acceptable and will be taken into consideration should applicant seek interim rate relief under Section 455.2(b).
No party opposes our suggestion to include a compliance showing regarding Section 10620 of the Water Code. Accordingly, we will incorporate such a requirement into the MDRs. For purposes of issuance of a deficiency letter, a proposed application will be deemed complete if all MDRs are submitted.
Lastly, we clarify the MDRs on "Conservation and Efficiency." We expect utilities to submit plans to achieve certain water reduction goals. While we consider these goals attainable, we do not now require utilities to meet these goals.
F. Notice of Rate Increases for Utilities with Bimonthly Billing
The OIR acknowledged that, under the existing RCP, utilities relying on bimonthly billing are not afforded sufficient time to notify their customers of a proposed rate increase or of upcoming PPHs. To provide sufficient time to provide such notice, the OIR proposed to modify the RCP processing schedule to hold public participation hearings later.
DRA agrees that the RCP should be modified to afford utilities with bimonthly billing sufficient time to provide customer notice but that the RCP should require PPHs before DRA submits its report. The Joint Parties agree that the RCP should allow adequate time for notifying customers of rate changes. No other party addresses this issue.
We conclude that the RCP processing schedule should be modified so that utilities have more time to provide notice to customers and so that PPHs are held before DRA submits its report. Accordingly, we adopt minor modifications to the OIR proposal. The adopted schedule will also provide DRA with sufficient time to investigate any new customer concerns raised at a PPH before DRA submits its report.
G. Addition of Technical Conference
The Water Action Plan 2005 includes the broad policy objective of "reasonable rates and viable utilities." In an effort to further this objective, the OIR proposed to add a technical conference requirement to the RCP. The Joint Parties agree that the addition of a technical conference to the RCP would ensure that Water Division and other parties understand the utility's ratemaking models. No parties contest this suggestion. We will adopt a technical conference requirement. This technical conference will be held between the filing of reply briefs and the issuance of the proposed decision. The specific details regarding the timing of the technical conference are set forth in the RCP, attached hereto as Appendix A.
H. Water Quality Review
To improve the Commission's review of water quality, the OIR proposed that the assigned Commissioner and assigned ALJ appoint, at the utility's expense, an independent expert witness to offer evidence on the utility's water quality compliance in its GRC proceeding. This proposal is founded on Hartwell Corp. v. Superior Court, 27 Cal.4th 256 (2002). In Hartwell, the California Supreme Court held that the Commission has constitutional and statutory responsibilities to ensure that water utilities provide water that protects the public health and safety. The OIR also incorporated water quality into the MDRs and suggested that the proposed decision in a GRC proceeding make specific findings and recommendations concerning the utility's water quality compliance.
The Joint Parties agree that a water quality expert witness would provide valuable input in a GRC. The Joint Parties further suggest that such an expert witness could be a qualified representative from the Department of Health Services (DHS) or a water quality consultant recommended by DHS.
Park comments that it is unclear whether the OIR proposes that the costs of a water quality expert be recoverable in rates or by some other method.
After considering all these comments, we direct the assigned Commissioner or the assigned ALJ to any Class A water utility GRC proceeding to appoint a water quality expert to provide evidence to assist us in making specific findings and recommendations concerning a utility's water quality compliance unless good cause exists to forego the appointment of a water quality expert. If the water quality expert submits written testimony, the water quality expert will be subject to cross-examination in accordance with the Rules of Practice and Procedure. Initially, the process we anticipate is that all GRCs will be referred to a water quality expert soon after the GRC is filed and the water quality expert will provide a preliminary review of the utility's water quality and address the water quality aspects of GO 103 and other applicable law. We further anticipate that the water quality expert will provide an informal report to the Presiding Officer prior to the PHC. If the Presiding Officer determines that a more extensive report is required, the Presiding Officer will order such a report and testimony in a ruling with the scoping memo by the same or a different water quality expert. Parties will be permitted to submit written responses to this aspect of the scoping memo.
In the future, where the utility has met all sampling and testing requirements, has no test results on facilities in active service that exceed certain maximum contaminant levels (MCLs), and no party raises concerns of merit, then no appointment of a water quality expert may be necessary.
In contrast to our proposal in the OIR, we do not expect the utilities to pay for this expert witness. To facilitate our oversight of water quality, the Commission's Water Division will enter into any required contracts with qualified water quality experts. The Water Division will oversee these contracts. We also will incorporate water quality into the MDRs and require that any proposed decision in a GRC proceeding make specific findings and recommendations concerning the utility's water quality compliance.
Finally, DHS offered support for certain additions to our MDRs that we included in the OIR. CWA, in its reply comments, agreed with the suggestions of DHS. As a result, as proposed in the OIR, we will require utilities to respond to certain water quality matters in their GRCs. These matters are set forth in the MDRs.
I. Reduction of Unaccounted Water
The OIR notes that since 1991 many water utilities have used the CUWCC's BMP 3, "Water Loss, System Water Audits, Leak Detection and Repair," to determine whether unaccounted water loss in the system exceeds 10%. As we noted in the OIR, BMP 3 has been criticized because it is based on a pre-screening test and, if improperly performed or manipulated, BMP 3 allows the water utility to avoid a full audit, even in situations where the recovery of lost water would be economically beneficial to the utility. To address this criticism (as well as for other reasons), CUWCC is considering adopting a new water loss audit methodology in a revised BMP 3. The new water loss audit methodology under consideration by CUWCC is derived from the American Water Work Association's (AWWA) standard methods for water auditing which is based upon the International Water Association's (IWA) Best Management Practice (herein the "AWWA/IWA audit methodology").
The OIR proposed the AWWA/IWA audit methodology, due to the clear resulting benefits, even though CUWCC is still in the process of considering whether to revise the BMP 3. Specifically, under the new methodology, Class A water utilities would perform and submit the results of a water loss audit as part of the GRC application and testimony.
The Joint Parties recommend that, until the CUWCC adopts changes, if any, to its BMP 3 to include this new methodology, the Commission continue to require Class A water utilities to comply when cost-effective with the existing CUWCC BMP 3. The Joint Parties suggest that it would be premature for the Commission to require utilities to comply with this new methodology. The revisions to BMP 3 are ongoing and may be significant based on the failure of this new methodology to consider the limited capital planning horizon of investor-owned utilities.
MPWMD supports the use of the new methodology. MPWMD suggests that any reduction in unaccounted water will improve service quality to customers. As a result, customers may be less adverse to rate increases.
We conclude that the concerns of the Joint Parties have merit. CUWCC is reviewing the AWWA/IWA audit methodology, and some problems may exist as it applies to utilities. We will not adopt any new requirements for unaccounted water at this time.
However, the current BMP 3 is ineffective in encouraging water utilities to reduce water losses, as the 10% unaccounted water target can be easily achieved through the manner in which unaccounted water is reported. The BMP 3 language dates back to 1991 and reflects the methodology for system water auditing and leak deduction included in the AWWA M 36 manual at that time. The AWWA M 36 manual is currently being revised. This manual will have the same unaccounted water requirements as the revised BMP 3 once both the M 36 manual and BMP 3 revisions are approved. Approval is expected to happen by early 2008. Consequently, water utilities shall be required to comply with the M 36 manual and BMP 3 as they are stated currently and to further comply when revised. During this interim period when the improved standard for unaccounted water will not be in effect, water utilities will be required to use the free Water audit software developed by AWWA, as set forth in the MDRs.9 Consistent with the Water Action Plan 2005, we are concerned about avoidable unaccounted water and seek to make improvements in this area.
J. Alternative Dispute Resolution
The OIR proposed that the RCP include an ADR process. Under the proposal in the OIR, an initial meeting among the active parties and an ALJ neutral is mandatory.
The Joint Parties generally agree with the ADR proposal in the OIR but suggest that, after the initial meeting, participation in the ADR process be optional, not mandatory. The Joint Parties believe that unless both DRA and the utility agree to rely on the ADR process, the process will not be useful or successful. MPWMD supports the use of ADR, especially if the meeting dates for ADR are scheduled at the same time and place as other meetings, such as PHCs or PPHs.
Under the proposal in the OIR, the ALJ neutral assigned to a particular GRC proceeding would determine whether ADR will be mandatory or optional. We adopt this rule and will make minor modifications to clarify the role of the ALJ neutral. While the Joint Parties may be correct that mandatory ADR will yield no results, we believe that the ALJ neutral is best able to make this determination based on the ALJ's neutral understanding of the circumstances of each case. Consistent with the Water Action Plan 2005, we intend to rely on the ADR process to streamline the GRC process. Accordingly, the first scheduled ADR meeting will be mandatory and subsequent meetings will be arranged by the assigned ALJ neutral as appropriate.
4 The Joint Parties includes the DRA, California Water Association, its member Class A water utilities, and Park Water Company. Some of the individual participants of the Joint Parties also filed separate comments.
5 The following CWA member utilities specifically joined in its comments and reply comments: California American Water Company, California Water Service Company, Golden State Water Company, San Gabriel Valley Water Company, San Jose Water Company, Suburban Water Company, and Valencia Water Company. Some of these utilities also filed individual comments and reply comments.
6 We do not designate this advice letter under any "Tier."
7 The three Class A water utilities are California American Water Company, California Water Service Company, and Golden State Water Company.
8 We do not designate this advice letter under any "Tier."
9 The software is available at: http://www.awwa.org/WaterWiser/waterloss/Docs/031WA AWWA Method.cfm.
