8. Assignment of Proceeding
John A. Bohn is the assigned Commissioner and Christine M. Walwyn is the assigned Administrative Law Judge in this proceeding.
1. This decision resolves Cal Water's GRC applications filed on July 26, 2005, for the Bakersfield, Dixon, King City, Oroville, Selma, South San Francisco, Westlake, and Willows districts.
2. On February 26, 2007, Cal Water and DRA filed a partial settlement for the eight districts, attached to this decision as Attachment 1.
3. The scope of this proceeding does not include development of IBRs. At the request of Cal Water, this issue was removed from this proceeding and is being addressed in I.07-01-022.
4. The Revised Rate Case Plan adopted in D.07-05-062 requires each GRC application filed on or after July 1, 2008 to contain a long-term, 6-10 year Water Supply and Facilities Master Plan to identify and address aging infrastructure needs, and requires that this plan be consistent with the GAO's March 2004 Report, GAO 04-461.
5. The planning studies authorized in this GRC proceeding do not meet the GAO criteria. Cal Water does not plan to meet the GAO criteria until the time of its 2009 GRC filings.
6. The Commission's Water Action Plan, adopted December 2005, encourages the deployment of AMR equipment.
7. In the Bakersfield district, the settlement authorizes $8,190,000 over the coming GRC period for the installation of new meters for residences that are un-metered. The record shows that the meter installation program will not include advanced metering, AMR equipment.
8. We find Cal Water should conduct a more thorough analysis of advanced water metering before it installs new meters in Bakersfield.
9. Cal Water and DRA did not update the interest rate forecasts for the coming GRC period prior to reaching a settlement. The updated forecasts in the record would lower DRA's risk premium model's ROE by 0.19% to 0.48%.
10. The new plant projects being authorized for later rate recovery under the AL filing process represent the largest dollar increases requested by Cal Water for each district.
11. Due to the magnitude of the potential AL rate increases authorized by the settlement, Cal Water should provide direct notice to customers of the AL process.
12. With the inclusion of refinements for master planning, meter installation, and customer notice, as discussed in this decision, we find the settlement as an integrated agreement is reasonable in light of the whole record and in the public interest.
13. For the Westlake district, the Commission has consistently established reclaimed water rates in the context of the entire system's costs.
14. We find it reasonable to maintain Westlake District's present reclaimed water rates, both service charge and volumetric rate. These customers will continue to be subject to AL filings in the coming GRC period, both to reflect changes in wholesale purchased costs for reclaimed water and for any facilities additions authorized here that are deemed used and useful for fire protection services. Reclaimed water customers should not be subject to the interim rate increase. They will be subject to the 2009-2010 attrition adjustment.
15. Cal Water should provide a detailed proposal for reclaimed water for the Westlake district in its next GRC proceeding.
16. We find the DGS policy on vehicle replacement reasonable.
17. We find a memorandum account rather than a balancing account is appropriate for Cal Water's conservation expenses, with a cap of 1.0% of revenues for the 2007 test year, and 1.5% for the 2008 and 2009 years. These caps are specific to this proceeding and should not be construed as a precedent or statement of policy.
18. Cal Water should file a conservation budget and measurement and evaluation proposal for each district within 90 days of the effective date of this decision and then make on-going reports and budget proposals on at least an annual basis.
19. For working capital, we find reasonable a 93 average lag-day calculation for federal income taxes and California Corporation Franchise Tax.
20. A marketing brochure for the ESP service offered to Cal Water customers by Cal Water's non-regulated affiliate CWSUS is attached to this decision as Attachment 2.
21. Cal Water's ESP service does not meet the definition of a maintenance contract. The common definition of maintenance is the upkeep, repair, and preservation of existing facilities. The excavation and replacement of a water service line goes well beyond this definition.
22. Cal Water did not submit the ESP service to the Commission for review prior to entering an Inter-Company Service Agreement with CWSUS, did not request approval of its prices, and did not provide cost studies or market power analyses.
23. Cal Water's affiliate transaction rules state that "[u]nregulated services, including pertinent contracts, that are performed by the Utility shall be transferred to the appropriate affiliate as soon as the requisite consents are obtained." (D.97-12-011, Settlement, Section XII (A), 1977 Cal. PUC LEXIS 1212, *14.)
1. We grant the petitions to intervene of North Ranch and the SFPUC.
2. The standard of review for the settlement is set forth in Rule 12.1(d) of our Rules of Practice and Procedure. This rule provides, in general, that, prior to approval, the Commission must find a settlement "reasonable in light of the whole record, consistent with the law, and in the public interest."
3. Cal Water and DRA's settlement, with refinements in three areas, meets our standard of review and should be adopted. The areas of refinement are:
a. Cal Water should examine if the master plan process currently underway for the Bakersfield, Selma, and King City districts can be augmented, either by a revised Request for Proposal or with in-house resources, to meet the 2004 GAO criteria for comprehensive asset management planning;
b. Cal Water should conduct a more thorough analysis of advanced water metering before it installs new meters in Bakersfield; and
c. Cal Water should provide direct notice to customers of the AL rate offset filings, as provided under GO 96-B general rule 4.2, rather than the lesser notice allowed under Water Industry Rule 3.1.
4. The settlement should not be construed as precedent or policy of any kind in this or future proceedings.
5. The Commission has constitutional and statutory responsibilities to ensure that water utilities provide water that protects the public health and safety.
6. We find no evidence to indicate any violations of applicable water quality standards by Cal Water in the eight districts since the last GRC proceeding in each district.
7. We should adopt the rate tables and tariff sheets attached to this decision at Attachment 3. Cal Water should file a compliance filing within five days of this decision removing from the revenue requirement and rate tables the ESP service costs and revenues and adjusting the Westlake reclaimed water rates.
8. We should adopt a memorandum account rather than a balancing account for Cal Water's conservation expenses, with a cap of 1.0% of revenues for the 2007 test year, and 1.5% for the 2008 and 2009 years.
9. Cal Water may be violating Public Utilities Code Section 453(a) because it appears to be granting undue and unjust preference to CWSUS for the ESP service. Monetary penalties against Cal Water should not be imposed under the specific facts presented here, and because this case presents an issue of first impression as to the type of service authorized under D.00-07-018.
10. The excess capacity rules for water utilities, adopted in D.00-07-018 do not apply to affiliate transactions.
11. The excess capacity rules adopted in D.00-07-018 do not apply to Cal Water offering the ESP service as a non-tariffed utility service because the assets used to provide the service are not excess capacity and Cal Water does not make the required showing that the ESP service does not violate any law, regulation, or Commission policy regarding anti-competitive practices. Specifically:
a. the utility assets used to provide the ESP service are not excess capacity;
b. we have no record to determine whether the manner in which the ESP service is being offered interferes with the development of a competitive market for the service;
c. we do not have a record to determine whether ratepayers are subsidizing a shareholder competitive venture; and
d. we do not have a record to determine whether ratepayers are paying a price for the service.
12. If Cal Water chooses to continue to provide the ESP service to its customers, it may do so either as a regulated utility service or as an affiliate service under the terms and conditions of Cal Water's affiliate transaction rules, and applicable statutes. In either case, Cal Water should file an application within 30 days of the effective date of this decision that sets for the terms and conditions of service.
13. If Cal Water wishes to continue offering the ESP service, but does not want to provide it as a regulated utility service or as an affiliate service pursuant to its affiliate transaction rules, then Cal Water shall file an application within 30 days that contains a detailed description of its proposed terms and conditions of the revised ESP service. The application should make the showing addressed in this decision and include a section describing how the proposed service offering complies with applicable law.
14. If Cal Water continues to offer the ESP service, then Cal Water should set up a memorandum account tracking all costs and revenue associated with the ESP account until the Commission determines how those funds should be allocated.
15. If Cal Water chooses to not conform its ESP service to our rules and statutes, it should file within 30 days of the effective date of this decision a compliance filing that contains a timetable for notifying its customers that the ESP service is being discontinued.
16. Cal Water may file a petition to modify D.97-12-011, its holding company decision, to modify its affiliate transaction rules so that it may directly offer an unregulated service under our excess capacity rules. Cal Water may make this filing even though more than one year has passed since the effective date of D.97-12-011.
17. The surcharge to true-up the interim rates authorized in D.07-06-028 shall be based on the methodology set forth in D.07-06-028 and should be filed by compliance letter within 10 days of the effective date of this decision.
IT IS ORDERED that:
1. The California Water Service Company (Cal Water) and the Division of Ratepayer Advocates settlement at Attachment 1 is adopted subject to the refinements discussed in the Findings of Fact and Conclusions of Law above.
2. The rate tables and tariff sheets at Attachment 3 are adopted.
3. Cal Water is authorized to file in accordance with General Order (GO) 96-B, and to make effective on filing, tariffs containing the 2007/2008 test year increases for its eight districts as provided in Attachment 3 to this decision. The revised rates shall apply to service rendered on and after the tariff's effective date.
4. On or after May 1, 2008, Cal Water is authorized to file in accordance with GO 96-B, a Tier 1 advice letter, with appropriate supporting workpapers, requesting an escalation adjustment to be calculated in conformance with the RCP and Attachment 3. The filing should include the remainder of the Selma rate phase-in and changes in water mix in Bakersfield as agreed in the adopted settlement. Cal Water should file a lesser increase in the event that the rate of return on rate base, adjusted to reflect the rates then in effect and normal ratemaking adjustments for the 12 months ending March 31, 2008, exceeds the lesser of (a) the rate of return found reasonable by the Commission for Cal Water for the corresponding period in the most recent rate decision, or (b) the rate of return found reasonable in this case. The advice letter shall be reviewed by the Commission's Water Division for conformity with this decision including the applicable provisions of the settlement and shall go into effect upon five days notice, not earlier than July 1, 2008. The tariffs shall be applicable to service rendered on or after the effective date.
5. On or after May 1, 2009, Cal Water is authorized to file in accordance with GO 96-B, a Tier 1 advice letter (AL), with appropriate supporting workpapers, requesting an escalation adjustment to be calculated in conformance with the RCP and Attachment 3. The filing should include changes in water mix in Bakersfield as agreed in the adopted settlement. The AL shall be reviewed by the Commission's Water Division for conformity with this decision including the applicable provisions of the settlement and shall go into effect upon five days notice, not earlier than July 1, 2009. The tariffs shall be applicable to service rendered on or after the effective date.
6. Cal Water is authorized to file Tier 1 ALs to request amortization of the balancing and memorandum accounts adopted in Sections 5.4 and 5.5 of the settlement.
7. Cal Water shall make a compliance filing within 30 days to include the water conservation memorandum account ordered in this proceeding in its preliminary statement.
8. Cal Water is authorized to file a Tier 3 AL rate base offsets to recover the reasonable capital costs of the improvements enumerated in the settlement, Attachment 1, Section 3. Attachment 1, Section 3 includes the approved description and scope of each project, the estimated cost, and the cap on project costs allowable in the advice letter filing. The Water Division shall use these factors in its review of each AL. Cal Water shall notice these ALs under GO 96-B general rule 4.2. rather than the lesser notice allowed under Water Industry Rule 3.1.
9. Cal Water shall make a compliance filing within 90 days of a final decision in this proceeding on the status and scope of possible revisions to its proposed Bakersfield, Selma, and King City master plans.
10. Cal Water shall make a compliance filing within 90 days of the effective date of this decision discussing whether the $8,190,000 in funding for meter installation will be spent on new meters that are compatible with future deployment of advanced metering technology and, specifically, with the advanced metering being deployed by PG&E in the Bakersfield district.
11. Cal Water shall file a conservation budget and measurement and evaluation proposal for each district within 90 days of the effective date of this decision and then make ongoing reports and budget proposals on at least an annual basis.
12. We adopt the Department of General Services policy on vehicle replacement.
13. We adopt a memorandum account rather than a balancing account is for Cal Water's conservation expenses, with a cap of 1.0% of revenues for the 2007 test year, and 1.5% for the 2008 and 2009 years.
14. We adopt for working capital a 93 average lag-day calculation for federal income taxes and California Corporation Franchise Tax.
15. Cal Water shall file within five days of the effective date of this decision a compliance filing to remove the Extended Service Protection (ESP) costs and revenues from the revenue requirement and rate tables we adopt here and to conform the Westlake district's reclaimed water rates to our decision.
16. Cal Water shall file an application within 30 days of the effective date of this decision that contains the terms and conditions of the revised ESP service if it chooses to continue to provide the ESP service to its customers, as a regulated utility service or as an affiliate service under the terms and conditions of Cal Water's affiliate transaction rules and applicable statutes.
17. If Cal Water elects to continue offering the ESP service, but chooses not to provide it as a regulated utility service or as an affiliate service under the terms and conditions of Cal Water's affiliate transaction rules, then Cal Water shall file an application within 30 days with a detailed description of the terms and conditions of the proposed revised ESP service. The application shall include the showing addressed here and a section describing how the proposed service offering complies with applicable law.
18. If Cal Water elects to continue offering the ESP service, Cal Water shall set up a memorandum account tracking all costs and revenue associated with the ESP service until the Commission determines how those funds should be allocated.
19. Cal Water shall file within 30 days of the effective date of this decision a compliance filing that contains a timetable for notifying its customers that the ESP service is being discontinued if it chooses to not conform its ESP service to our rules and statutes.
20. The surcharge to true-up the interim rates authorized in D.07-06-028 shall be based on the methodology set forth in D.07-06-028 and shall be filed by compliance letter within 10 days of the effective date of this decision.
21. Application (A.) 06-07-017, A.06-07-018, A.06-07-019, A.06-07-020, A.06-07-021, A.06-07-022, A.06-07-023, and A.06-07-024, are closed.
This order is effective today.
Dated December 20, 2007, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
