7. WRAMs and MCBAs
The Suburban settlement proposes a Monterey-style WRAM. The CalWater and Park settlements propose full decoupling WRAMs and MCBAs. CFC opposes the CalWater and Park WRAMs.
7.1. Suburban
Suburban and DRA propose a Monterey-style WRAM, which will track the differences between revenue received for actual sales under the proposed conservation rate design and the revenue Suburban would have received if its existing rate design, a single quantity rate, remained in place. The over- or under-collection of revenues will be amortized consistent with Standard Practice U-27-W, once the threshold of 2% of the tracked revenue requirement is reached. Any balance in the WRAM account will accrue interest at the 90-day commercial paper rate and Suburban will file an advice letter for amortization of the balance consistent with Standard Practice U-27-W. CFC initially objected to Suburban and DRA's WRAM proposal but later withdrew the objection.
In D.06-08-017, we ordered Suburban to propose a Monterey-style WRAM. Suburban and DRA agree that Suburban's unique circumstance, obtaining 70% of purchased water from 25 different sources, creates a different incentive than that envisioned in our WAP. Suburban has the incentive to avoid additional purchases of water at higher incremental rates. A full decoupling WRAM would remove this conservation incentive. The proposed Monterey-style WRAM is reasonable for Suburban.
7.2. CalWater and Park
The goals for both CalWater's and Park's WRAMs and MCBAs are to sever the relationship between sales and revenue to remove the disincentive to implement conservation rates and conservation programs, to ensure cost savings are passed on to ratepayers, and to reduce overall water consumption. The parties agree that the WRAMs and MCBAs are designed to ensure that the utilities and ratepayers are proportionally affected when conservation rates are implemented, so that neither party is harmed nor benefits. The MCBAs will replace existing cost balancing accounts for purchased power, purchased water, and pump tax. The WRAMs will track the difference between adopted revenue and actual revenue and will ensure recovery of fixed costs that are recovered through the quantity charge and variable costs that are not included in the MCBAs.24 The MCBAs will track the difference between actual variable costs and adopted variable costs for purchased water, purchased power, and pump tax. MCBAs track all changes in those costs due to consumption, including changes in unit price.25 Annually the revenue over- or under-collection tracked in the WRAMs and the difference between adopted and actual costs tracked in the MCBAs will be reported to the Commission's Water Division.26 If the combined over- or under-collection exceeds 2% of Park's and 2.5% of CalWater's prior year revenue requirement, the combined balance of the accounts will be amortized. Combined under-collections will be passed through as surcharges on volumetric charges; combined over-collections will be passed through as surcredits on volumetric charges.27 Park and CalWater commit to maintaining a least cost water mix.
CFC states a WRAM only should be adopted only if there is a financial disincentive to conserve and there is no evidence that Cal Water and Park have a financial disincentive to conserve water. CalWater and Park provide examples concerning their financial disincentive to promote water conservation. CalWater notes that the Commission's water ratemaking procedures, based on sales forecasts, permit utilities to earn more revenue if sales increase above forecasts and less revenue if sales are lower and provide a disincentive to promote successful water conservation programs. For example, CalWater proposed a toilet replacement program in its Bear Gulch District, which would result in water savings of 15 acre-feet per year. At current rates, revenue loss would be $15,682 annually. (Exhibit 17, p. 8.) Park illustrates that its revenue loss exceeds its cost savings for every unit of water that is not sold. The most expensive source of the adopted cost of purchased water is $1.14/ccf, less than half the adopted single tier commodity rate. (Park's Reply Brief, p. 13.)
With WRAMs in place, the utility and the ratepayers are not at risk for under- and over-collection of revenues following the adoption of conservation rates. A WRAM also removes weather and economic risk associated with sales volatility from both the utility and ratepayers. (See Exhibit 17, p. 17.) Removing sales risk also reduces the importance of sales forecasting in regulatory proceedings. (Id.)
The WAP concluded water utilities had a financial disincentive to conserve water and full decoupling of sales and revenues was necessary to remove that disincentive.28 CalWater and Park have illustrated how the WAP's generic conclusion is applicable to their existing rate structure. The conservation rate design and accompanying WRAMs and MCBAs move CalWater and Park to pricing that sends conservation signals while providing the financial incentive to adopt effective non-price conservation programs.
CFC states the conservation rate design must be experimental in order to authorize a WRAM, in reliance on an earlier decision adopting a Monterey-style WRAM. (See D.96-12-005, 69 CPUC 2d 398.) That decision adopted a settlement, which the parties characterized as experimental, and did not endorse use of a WRAM only for experimental conservation rates. The WAP supported full decoupling WRAMs and did not tie the need for them to an experimental rate design. There is no support for tying a WRAM to an experimental rate design.
24 The WRAMs will not include service charge revenues. The WRAMs will exclude revenue from fire service, unmetered service, reclaimed water metered service, and fees (Park) and fire service revenue, unmetered service revenue and other non-general metered service revenue (CalWater). CalWater will have a separate WRAM for each district. The WRAM accounts will track revenues by customer class.
25 The incremental cost balancing accounts replaced by the MCBAs track costs attributable to changes in unit price for purchased water, purchased power, and pump taxes but not changes in the amount of consumption.
26 Interest on amounts in the accounts will accrue at the 90-day commercial paper rate.
27 Remaining balances will be addressed in GRCs.
28 Pub. Util. Code § 2714.5 requires the Commission to report to the Legislative progress on implementing WAP issues by June 30, 2008.
