II. DISCUSSION

Whether there should be a downward adjustment of ROE if we were to adopt the WRAM and WCBA accounting mechanisms proposed in this proceeding has been an unresolved issue between DRA and Cal-Am throughout A.06-01-005. DRA has counseled that there should be an adjustment to Cal-Am's ROE, and Cal-Am has argued that there should not.

D.07-08-030 contains language noting a preference for a CLAM. It also encourages the DRA and Cal-Am to modify the WRAM proposal with a more narrowly focused WRAM, which is what it infers a CLAM is. D.07-08-030 declares that for policy reasons we prefer the more narrow mechanism, i.e., CLAM, for Cal-Am's Los Angeles District pilot conservation program and that

modified mechanism should ensure that Cal-AM does not under-collect due to conservation rate design and new conservation programs and does not over-collect from its ratepayers.

Although the staff does not question our authority to encourage parties to consider and negotiate alternate mechanisms, it believes that in D-07-08-030 we exceed our authority by: "...unambiguously adopt[ing] conclusions that (1) advocate use of a specific regulatory accounting mechanism, a CLAM, to the exclusion of the parties' proposed WRAM, and (2) determine that a CLAM should be considered to have no impact on a company's ROE." (DRA application for rehearing at p. 4.)

The language DRA terms "conclusions" exists only in text and language in a decision's text is generally considered dicta. It was presented to assist the parties in Phase 2 and does not constitute determinations of material issues. There are no findings of fact or conclusions of law or ordering paragraphs in D.07-08-030 regarding our stated policy preference for a CLAM or on the question of whether it would affect Cal-Am's ROE. Thus, the Commission did not make any determinations regarding a CLAM or its effect on Cal-Am's ROE.

The challenged dicta was meant to encourage the parties in Phase 2 to consider a CLAM, which the decision suggests is a modified version of the proposed WRAM, rather than the proposed WRAM. We also suggested that the parties might be more successful in pursuing that mechanism. That encouragement for the parties to consider a CLAM does not necessarily prejudge how the Commission will respond to a WRAM if the parties continue to pursue it.

As demonstrated by DRA's rehearing application, the dicta involving the suggested CLAM and its possible effect on Cal-Am's ROE is subject to be misinterpreted as a determination or prejudgment. Accordingly, we modify the challenged dicta as proposed below.²

Further, we note that the statement: "[i]f Cal-Am and DRA modify their pending Phase 2 settlement to replace the proposed WRAM with a ... [CLAM] that meets the criteria discussed here, an ROE adjustment would not be necessary," appears to be more than mere opinion. (See D.07-08-040 at p. 37.) Because there is no record to support that conclusion it should not be included in D.07-08-030, even in the text. Accordingly, we shall modify the challenged decision as follows to remove suggestive language from the text.

On page 35 of D.07-08-030 in first full paragraph of the section entitled Commission's Preference for a Conservation Loss Adjustment Mechanism for Los Angeles District, the third sentence is modified to delete the words: "... and will not require continuous litigation of an ROE adjustment" so that the paragraph reads as follows:

We encourage Cal-Am and DRA to modify their pending Phase 2 settlement to include a conservation loss adjustment mechanism that is focused solely on cost under- and over-recovery caused by our conservation policies. The objective of this mechanism should be to ensure Cal-Am does not undercollect its authorized fixed costs due to conservation rate design and new conservation programs and to ensure ratepayers are protected from any over-recovery of authorized costs that are due to shifting more cost recovery to the volumetric rate under a conservation rate design. We prefer this approach because it directly supports our conservation goals and it will not require continuous litigation of an ROE adjustment.[footnote omitted] Such a mechanism should provide....

In first full paragraph on page 37 of D.07-08-030, continuing in the section entitled Commission's Preference for a Conservation Loss Adjustment Mechanism for Los Angeles District, the second sentence is deleted in its entirety so that the paragraph reads as follows:

For the reasons discussed here, a Phase 2 adoption of a conservation loss adjustment mechanism (CLAM) rather than the proposed WRAM is the Commission's policy preference for Cal-Am's Los Angeles District pilot conservation program. If Cal-Am and DRA modify their pending Phase 2 settlement to replace the proposed WRAM with a conservation loss adjustment mechanism that meets the criteria discussed here, an ROE adjustment would not be necessary.

The first full paragraph on page 61 of D.07-08-030 in the section entitled Comments on the Proposed Alternate Decision is modified to delete the third sentence: "However, if a CLAM can be negotiated, the rate design in Phase 2 is likely to proceed smoothly" in its entirety, and the words "That said," in the fourth sentence are also deleted so that the forth sentence becomes the third sentence and begins with the word "It" so that the paragraph reads as follows:

The CLAM was suggested to encourage the development of conservation rates in Phase 2 of this proceeding. It is not a requirement that Cal-Am and DRA need to agree to a CLAM to move Phase 2 forward. However, if a CLAM can be negotiated, the rate design in Phase 2 is likely to proceed smoothly. That said, iIt was not the intent to provide sweeping generalizations about the benefits of a CLAM. We intended that the preference for a CLAM was limited to this GRC only, primarily for the benefit of ensuring an expeditious rate design phase.

In view of the above discussed modifications we find the DRA's allegations to be without merit and deny the application for rehearing of D.07-08-030 as modified by this decision.

² As noted above, D.07-08-030 was modified by D.07-11-014. Our modification to D.07-08-030 shall be to D.07-08-030 as modified by D.07-11-014.