4. Memorandum Account Request

CalWater requests authority to establish a memorandum account to track costs associated with either installing a marine desalination unit or constructing a new well.

DRA, Young and Pareas are opposed to the memorandum account. DRA is opposed to a memorandum account to record the costs of constructing a new well because it believes CalWater does not need additional water supply to serve its current customers, and also because there is no guarantee that a new well will result in additional capacity. DRA states that it is generally opposed to memorandum accounts to track costs of projects that are not needed to serve existing customers and that may not yield additional capacity. DRA believes CalWater should follow the guidelines set forth in the Commission's System Improvement Policy (SIP) for such plant additions. Young recommends the same.

CalWater requests authority to establish a memorandum account to book the cost associated with either installation of a desalination unit or construction of a new well. Since in sections above we rejected CalWater's requests for the installation of a desalination unit, we need not address the memorandum account treatment for that option here. In the following section, we discuss whether a memorandum account should be authorized to record costs associated with remedies to lift the moratorium.

A brief history of memorandum accounts will help put this issue in context. Generally, the Commission's ratemaking is done on a prospective basis in utilities' general rate cases; however, the Commission has established a four-pronged test to determine if a memorandum account is appropriate for tracking specific expenses for future consideration of their recovery in utility rates. Resolution W-4276 states that memorandum accounts are appropriate when the following conditions are met:

1. The expense is caused by an event of an exceptional nature that is not under the utility's control;

2. The expense cannot have been reasonably foreseen in the utility's last GRC and will occur before the utility's next scheduled rate case;

3. The expense is of a substantial nature in the amount of money involved; and

4. The ratepayers will benefit by the memorandum account treatment.

Thus, in determining whether to authorize a memorandum account for costs associated with remedies to lift the moratorium, we look to see if the above four prongs are met.

The first and second prongs of the test refer to the costs caused by events that occurred between GRCs and which were unforeseeable. Examples of such events include the rolling black outs from the power outage in 2001 and the events of September 11, 2001, which, as the Commission noted were of exceptional nature and could not have been anticipated in the utilities' GRCs.²⁹ The history of the moratorium indicates that CalWater's request does not meet these standards. The moratorium had been in place for nearly two years when CalWater acquired Coast Springs from Dominguez in 2000. At the time of acquisition, CalWater was aware that it was under the obligation to make necessary improvements to remove the moratorium. CalWater has completed two GRCs since the acquisition and could have proposed these remedies to lift the moratorium in those GRCs.³⁰ It did not do so. We find that CalWater fails to meet the first two prongs of the memorandum account test, and we decline to authorize a memorandum account for CalWater to record the improvement costs associated with lifting the moratorium in Coast Springs. Such expenses can be reasonably foreseen and planned for by CalWater in its next GRC. DRA has proposed that CalWater follow the Commission's SIP. That is consistent with the policy established in D.06-08-011 and we order CalWater to follow the SIP and plan for expenses related to improvements to lift the moratorium in its next GRC. In its comments on the proposed decision, CalWater argues it should be authorized a memorandum account for the expenses associated with examining the remedies in the proposed decision as well as with the preparation of a redundancy report and the follow up on the CH2MHILL, because these expenses are significant and caused by an event of an exceptional nature that is not under CalWater's control. The proposed decision has appropriately considered and rejected these types of expenses for memorandum account treatment.

²⁹ See D.02-07-011 and Resolution W-4276.

³⁰ CalWater made some improvements for which it sought recovery in its last GRC.