15. Suburban's Memorandum Account Proposal
Suburban requests a memorandum account to track costs for developing and establishing a conservation rate design, including legal and consulting services associated with its consolidated application and all customer notifications that are not otherwise covered separately by the low income memorandum account. DRA supports opening a memorandum account to track prospective costs but opposes tracking expenses already incurred on the grounds that such recovery would be contrary to the principle against retroactive ratemaking.
In Suburban's last GRC, Suburban and DRA entered into a settlement agreement that was adopted in D.06-08-017. Suburban and DRA did not address a conservation rate design in the settlement agreement, because Suburban intended to propose one in its next GRC. In D.06-08-017, we ordered Suburban to file a conservation rate design within 90 days of issuance of the decision. In order to timely file a proposal, Suburban hired a consultant to assist with the development of its conservation rate design proposal. As of May 31, 2007, Suburban had incurred $67,506.59 in expenses associated with this investigation.39 Since May 31, Suburban has incurred additional expenses related to this proceeding and will incur legal expenses for Phase 1B and Phase 2 of this proceeding.
We have permitted the creation of memorandum accounts to permit recovery of unanticipated legal and regulatory expenses that could not have been anticipated in the utility's last GRC. DRA and Suburban concur that the legal and regulatory expenses associated with participation in this proceeding qualify as an unanticipated expense. They disagree as to whether the expenses incurred prior to creation of the memorandum account can be booked to that account.
In establishing memorandum accounts to record expenses not anticipated in the utility's last GRC, we have permitted expenses incurred after the order authorizing the memorandum account was adopted to be recorded. We have, however, declined to permit the inclusion of previous expenses:
It is a well established tenet of the Commission that ratemaking is done on a prospective basis. The Commission's practice is not to authorize increased utility rates to account for previously incurred expenses, unless, before the utility incurs those expenses, the Commission has authorized the utility to book those expenses into a memorandum account or balancing account for possible future recovery in rates. This practice is consistent with the rule against retroactive ratemaking. (emphasis in original), D.92-03-094, 43 CPUC 2d 596, 600.
We will not authorize Suburban to track in a memorandum account legal and consulting expenses incurred between the issuance of D.06-08-017 and the issuance of this OII. The costs to prepare Suburban's application were anticipated in its GRC proceeding. Although we required Suburban to prepare its application in a timeframe not anticipated in its settlement with DRA, intervenors had pressed for an earlier consideration of conservation rates. Because these costs were anticipated at the time of Suburban's GRC proceeding, there is no reason to consider recovery of them now.
Costs of litigating this proceeding, however, are subject to different considerations. As noted in Suburban's comments on the proposed decision, Cal-Am sought by an October 16, 2007 advice letter to establish a memorandum account to track expenses arising from its participation in this proceeding. On November 13, 2007, our Water and Audits Division rejected the advice letter. The rejection of the advice letter is inconsistent with the treatment of similar expenses in the drought OII, I.89-03-005, et al. In that proceeding, staff recommended that participants in the OII be permitted to book legal expenses incurred in the drought proceedings to memorandum accounts created after the issuance of the OII, and the Commission adopted that recommendation. (D.92-09-084, 45 CPUC 2d 630, 642, Ordering Paragraph 6.)
Participation in the drought proceedings was not anticipated and neither was participation in this investigation. The WAP did not recommend consideration of conservation rate designs in a generic proceeding, and several Class A water utilities had filed applications prior to the issuance of this investigation. We initially consolidated three of those applications with this proceeding and by ruling later consolidated two applications filed after this investigation opened. Although we initially anticipated a more abbreviated schedule and a narrower focus to this proceeding, the timeframe for the proceeding and the issues under consideration have broadened. In addition, participation of consumer groups has benefitted this proceeding but has also resulted in increased time spent in settlement negotiations and litigation. Under these unique circumstances, where the costs arise due to our requiring the utilities' participation in a generic proceeding to develop conservation rate designs and address non-rate design issues and where timely creation of a memorandum account was summarily rejected, it would be unjust to deny tracking these costs in memorandum accounts.40
We will authorize Suburban and the other Class A water utilities to establish memorandum accounts to track the legal and related costs of participating in this proceeding.41 Although we authorize herein memorandum accounts to track legal and related costs incurred in this proceeding, we limit such authorization to the circumstances of this proceeding. Future requests for memorandum accounts to track costs associated with participating in generic proceedings shall be made by advice letter and the appropriate industry division, in this instance the Water Division, shall prepare a resolution for our consideration of the request. In that way, the Commission will be able to follow its standard practice, described above, of authorizing memorandum accounts to include only expenses incurred after the account has been authorized.
39 The bulk of the costs Suburban requests to track in the memorandum account are attorneys' fees and related legal expenses.
40 D.90-10-026 does not require a different result.
We also note that this proceeding is not a general ratemaking proceeding and the costs to be booked are limited to the costs of litigating this proceeding.
41 The legal and related costs of participating in this proceeding from the date of issuance of this OII may be tracked in the memorandum accounts. Costs of preparing applications consolidated with this proceeding, whether incurred prior or subsequent to the issuance of the OII, are excluded from the authorized memorandum accounts as are customer notices.
