Condition 6: "A decision must be issued authorizing Cal Water to submit an Advice Letter filing for PBOP accruals prior to Cal Water receiving any and all rate recovery for PBOP accruals. Such a decision or ruling shall be made in response to satisfaction of all of the conditions set forth in item no. 5, above."
DRA claims that Cal Water did not attempt to demonstrate in AL 1341 that it had complied with all the ordering paragraphs of D.92-12-015 as required by Condition 1. DRA also states that D.92-12-015 required a reasonableness review as a prerequisite for rate recovery, which never occurred with respect to the FAS 106 costs requested by Cal Water in AL 1341.
DRA next argues that AL 1341 failed to comply with the requirement in Conditions 1 through 4 to provide the work papers, documents, and information specified by these Conditions. DRA asked Cal Water to provide all of this material in the instant proceeding, but Cal Water was unable to do so because much of the material is missing. In light of the missing material, DRA asserts that Cal Water has failed to prove that AL 1341 complied with Conditions 1-4.
DRA further argues that AL 1341 did not comply with Condition 5, which directed DRA to either request a PHC to initiate litigation on Cal Water's Compliance Filing or, alternatively, notify the Commission that (1) the Compliance Filing complied with D.92-12-015 and the Conditions of the Settlement Agreement, and (2) Cal Water should be authorized to recover its requested FAS 106 expense in rates.
DRA has no record or memory of having requested a PHC or providing the notice required by Condition 5. DRA states that the requirement to request a PHC or provide notice was contingent on Cal Water having first given the Compliance Filing to DRA. DRA has no record or memory of having received AL 1341. Therefore, the condition precedent for DRA to submit either the PHC request or the notice never materialized.
Finally, DRA claims that AL 1341 failed to comply with Condition 6, which directed Cal Water to file an advice letter for recovery of its FAS 106 costs after the Commission had issued a decision or ruling that (1) authorized Cal Water to file an advice letter, and (2) found that Cal Water had complied with Condition 5. The Commission never issued the decision/ruling contemplated by Condition 6, which means that Cal Water lacked authority under Condition 6 to file AL 1341. DRA argues that CACD's acceptance of AL 1341 does not demonstrate compliance with D.92-12-015 or the Conditions of the Settlement. Only the Commission had authority to make this determination, which never occurred.
DRA concludes that the numerous flaws in AL 1341 means that Cal Water never obtained legitimate Commission authorization for the PBOP regulatory asset set forth in the Advice Letter. Because Cal Water never had valid authority for its PBOP regulatory asset, DRA urges the Commission to deny Cal Water's request to recover the $9.8 million regulatory asset.
Cal Water responds that contrary to DRA's accusations, AL 1341 complied with D.92-12-015 and the Conditions of the Settlement Agreement adopted by D.93-08-033. The Advice Letter provided all of the material required by Conditions 1-4, which is demonstrated by the fact that AL 1341 lists the documents and work papers that were attached. AL 1341 states:
The accompanying workpapers contain the documentation requested in Appendix A, Attachment A as follows: 1) copies of all trust Agreements for PBOP trust accounts, 2) copies of all Actuarial Valuations for PBOP, 3) workpapers showing the derivation of revenue requirement for PBOP accruals, 4) workpapers showing the derivation of revenue requirements for each district, and 5) workpapers showing that working cash amounts are consistent with the schedule for tax-deductible contributions to PBOP trusts. (AL 1341, p. 3.)
Although many of the documents and work papers listed in AL 1341 are now missing, the Cal Water officer responsible for filing AL 1341 testified that he has personal knowledge that all the documents and workpapers listed in AL 1341 were, in fact, submitted with the Advice Letter.
Cal Water also believes that it can be inferred that AL 1341 provided the material required by Conditions 1-4 because the Advice Letter set new rates for each of Cal Water's districts to recover FAS 106 costs. These rates were based on a four-factor formula that was used to allocate FAS 106 costs to each district. The costs assigned to each district were further allocated based on usage and the number of service connections to compute the new rates for metered and flat-rate customers. The rates also reflected Cal Water's lead-lag calculation for tax-deductible calculations. Cal Water believes it would have been impossible for CACD to derive the tariff rates for each district without the workpapers attached to AL 1341. In Cal Water's experience, CACD would not have approved new rates without workpapers showing their derivation.
Cal Water maintains that there is no credible evidence that AL 1341 was not properly filed or did not contain all necessary documents. Nor is there any credible evidence that CACD did not properly review AL 1341. Cal Water says it has relied upon the validity of AL 1341 since 1994. The Commission has issued several decisions in GRCs that follow the accounting, funding, and ratesetting procedures in AL 1341, thereby ratifying the effectiveness of the Advice Letter.
DRA argues that AL 1341 failed to comply with D.92-12-015 and D.93-08-033. DRA's accusation is contradicted by CACD's letter dated June 10, 1994, which accepted AL 1341. The letter states:
The Commission has accepted the utility's proposal in Advice Letter No. 1341 for recovery of expenses related to the Post Retirement Benefits other than Pensions (PBOP) in accordance with Decision Nos. 92-12-015 and 93-08-033.17
CACD was acting on behalf of the Commission when it accepted AL 1341 in accordance with D.92-12-015 and D.93-08-033. CACD's acceptance of AL 1341 was presumptively reasonable, and DRA has the burden of proving otherwise. For the following reasons, we conclude that DRA has failed to prove that CACD's acceptance of AL 1341 was unreasonable.
DRA asserts that AL 1341 did not comply with OP 2.d of D.92-12-015, which required a reasonableness review as a prerequisite for rate recovery. DRA asserts that a reasonableness review never occurred for the FAS 106 costs requested by Cal Water in AL 1341. DRA also claims that Cal Water did not attempt to demonstrate in AL 1341 that it had fully complied with all the ordering paragraphs of D.92-12-015, as required by Condition 1.
We find no merit in DRA's assertions. AL 1341 and its accompanying documents and workpapers described exactly how Cal Water intended to comply with the ordering paragraphs of D.92-12-015. The Advice Letter indicated that Cal Water intended to make the maximum tax-deductible contributions allowed by its 401(h) account, recover this amount in rates, record a regulatory asset for the difference between its FAS 106 costs and its contributions, and recover the regulatory asset in future years as authorized by the Commission. The Advice Letter provided all of the material necessary to demonstrate that Cal Water's proposed accounting, funding, and ratemaking for FAS 106 costs complied with the ordering paragraphs of D.92-12-015. This material included actuarial reports, trust agreements, and other documents and work papers required by the Settlement.
Although DRA is correct that D.92-12-015 required a reasonableness review of FAS 106 costs as a prerequisite for rate recovery, DRA ignores Conditions 5 and 6 of the Settlement Agreement which clearly indicate that the required reasonableness review was to occur when Cal Water filed AL 1341 using the material provided by the Advice Letter. These Conditions state:
17 CACD letter, p. 1. CACD's letter is attached to A.06-12-025 at the end of Exhibit 2.
