VIII. Assignment of Proceeding
John A. Bohn is the assigned Commissioner and Karl Bemesderfer is the assigned ALJ in this proceeding.
1. Valencia presently serves approximately 28,300 customers.
2. Water delivered to Valencia's customers contains between 300 and 700 ppm of dissolved minerals, principally calcium and magnesium.
3. A majority of Valencia's customers find the water very hard.
4. Eleven to twelve thousand of Valencia's customers operate in-home water softening devices at an average monthly cost of $50.
5. Self-generating home water softeners periodically discharge brine into the wastewater system and ultimately into the Santa Clara River.
6. Valencia customers contribute about 45% of the brine discharged into the river by all water company customers in the Santa Clarita Valley.
7. Without a significant reduction in brine discharges from home water softeners operated by customers of Valencia and the other water companies serving the Santa Clarita Valley, the Santa Clarita Valley Sanitation District (Sanitation District) will be forced to build new wastewater treatment facilities to remove the brine from the Santa Clara River.
8. New wastewater treatment facilities would cost up to $447 million dollars to build.
9. The cost of new wastewater treatment facilities will be passed on to customers of the Sanitation District.
10. Removal of the self-generating type of home water softeners would reduce the need for additional wastewater treatment facilities.
11. Pellet softening at the wellhead is the least expensive method of removing dissolved minerals from the water.
12. A demonstration pellet softening plant will cost $1.7 million to build and $170,000 per year to operate.
13. Softening all of Valencia's well water at the wellhead would save Valencia customers up to $3.4 million per year even if no other water company serving the Santa Clarita Valley softens the water it delivers to its customers.
14. Valencia's capital structure consists of 69% equity, 3.05% preferred stock and 27.95% long term debt.
15. Valencia is a small water company notwithstanding its ownership by a large real estate development company.
16. Small water companies typically have higher costs of capital than large water companies.
17. An equity risk premium of 0.6% is appropriate for Valencia.
18. At the urging of the Commission, in June 2006 Valencia joined the CWUCC and signed its MOU.
19. The MOU commits Valencia to implement 14 BMPs.
20. Implementing the BMPs requires Valencia to hire additional employees.
21. In 2006, Valencia created the position of Conservation Coordinator to implement BMP 12.
22. In 2005, Castaic Lake Water Agency switched disinfectants from chlorine to chloramine.
23. Use of chloramine as a disinfectant imposed additional sampling and flushing requirements on Valencia.
24. In 2005, Valencia created two Water Treatment Technician positions to perform the additional sampling and flushing activities.
25. In 2005, Valencia conducted a competitive salary survey.
26. In 2005, Valencia increased certain employee salaries to match salaries being offered by competing water companies.
27. In 2007, Valencia will hire a new Customer Service Representative and a new Field Service Coordinator.
28. In 2008, Valencia will hire a new Operator, Level 1.
29. The new positions to be filled in 2007 and 2008 are in response to growth of Valencia's customer base.
30. Valencia has complied with all Department of Health Services safe drinking water standards during the period since its last GRC in 2002.
31. Valencia's Water Management Program as submitted in this GRC is adequate for the Commission's purposes.
32. Valencia's proposed revisions to its tariff formula for calculating the costs of recycled and untreated water purchase by Valencia from Castaic Lake Water Authority are appropriate.
1. Valencia's construction of a demonstration pellet softening plant is in the public interest.
2. Valencia's capital structure for ratemaking purposes should be its actual capital structure.
3. A rate of return of 10.19% on common equity is supported by the record and in the public interest.
4. Valencia's 2005 salary increases were reasonable.
5. Valencia's estimate of future outside service expense is reasonable.
6. Additional positions created by Valencia in 2005 and 2006 were necessary and reasonable.
7. Positions Valencia proposes to create in 2007 and 2008 are necessary and reasonable.
8. Valencia's interest deduction for ratemaking purposes should be its actual interest deduction.
9. One hundred three thousand dollars is a necessary and reasonable expense to implement BMPs 1 and 2 of the CUWCC.
10. It is reasonable to use 2006 Energy Branch escalation factors to escalate Test Year expenses that were not the subject of the stipulation between Valencia and DRA.
11. Valencia's compliance filings regarding DHS safe water drinking standards, its Water Management Program, and its revised method of calculating the costs of recycled and untreated water purchased from CLWA are approved.
12. Valencia should file a separate application for approval of its proposed Base Memorandum Revenue Account together with a proposed increasing block rate design.
IT IS ORDERED that:
1. The earnings and rates for test year 2007 calculated in conformance with this decision and set forth in Appendices B through G are authorized. Valencia Water Company (Valencia) is authorized to file in accordance with General Order (GO) 96-A (or its successor), and to make effective on no less than five days' advance notice, a tariff containing the test year 2007 increase as provided in this decision. The revised rates shall apply to service rendered on or after the tariff's effective date.
2. Subject to pro forma tests after the 2007 increases are effective, Valencia is authorized to file in accordance with GO 96-A (or its successor), and to make effective on not less than five days' advance notice, a tariff setting forth rates for years 2008 and 2009, calculated in conformance with this decision. The revised rates shall apply to service rendered on or after the tariff's effective date.
3. Once Valencia has constructed a demonstration water softening plant, as described in the record of this proceeding, and the new plant is operational, Valencia is authorized to file an advice letter to include its investment up to $1.7 million in that plant, as well as associated operation and maintenance expenses up to $170,000 per year, in its rates.
4. For ratemaking purposes, Valencia's capital structure shall be set at 69% common equity, 27.95% long-term debt and 3.05% preferred debt.
5. Valencia shall receive a return on common equity of 10.19%.
6. Valencia shall recover its 2005 salary increases as part of this general rate case (GRC).
7. Valencia shall recover the salary costs of a new Conservation Coordinator in this GRC.
8. Valencia shall recover the costs of two new Water Quality Technicians in this GRC.
9. Valencia shall recover the costs a new Customer Service Representative, a new Field Service Coordinator and a new Operator, Level 1 in this GRC.
10. Once Valencia has replaced its billing system and the new billing system is operational, Valencia is authorized to file an advice letter to include its investment in that billing system up to $400,000 in its rates.
11. Valencia may receive an allowance of $103,000 to recover the costs of implementing Best Management Practices 1 and 2 of the California Urban Water Conservation Council.
12. Valencia shall use 2006 Energy Branch escalation factors to calculate Test Year expenses not covered by the stipulation between Valencia and Division of Ratepayer Advocates.
13. Valencia is authorized to increase rates charged for water service in order to realize increased annual revenues of $2,815,795 in a Test Year beginning July 1, 2007; and decreased annual revenues of $620,893 in a Test Year beginning July 1, 2008.
14. Valencia has complied with all Department of Health Services safe drinking water standards since its last GRC in 2002.
15. Valencia's Water Management Program as submitted in this GRC is adequate for the Commission's purposes.
16. Valencia may adopt a revised tariff formula for calculating the costs of recycled and untreated water purchased by Valencia from Castaic Lake Water Authority and resold to Valencia customers.
17. Valencia shall file a separate application for approval of its proposed Base Revenue Memorandum Account together with a proposed increasing block rate design.
18. Application 06-07-002 is closed.
This order is effective today.
Dated June 21, 2007, at San Francisco, California
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
APPENDIX A
************ SERVICE LIST ***********
Last Update on 02-OCT-2006 by: LIL
A0607002 LIST
************ APPEARANCES ************ |
********** STATE EMPLOYEE *********** |
(END OF APPENDIX A)
D0706024 Application for General Rate Increase Appendices B-G
