8. Assignment of Proceeding
John A. Bohn is the assigned Commissioner and Sarah R. Thomas is the assigned Administrative Law Judge in this proceeding.
1. The settlement represents a compromise from rate increases that were in the 20-30% range in the original application (with the 59.1% increase proposed for the Chico district an anomaly).
2. Under the settlement, regarding rate base offsets, Cal Water will continue to file for rate base offsets under the current Tier 3 advice letter process pursuant to GO 96-B. The change will be that each such advice letter will be effective immediately, but subject to refund with interest if necessary when the Commission issues a Resolution on the advice letter. Cal Water will ask for review of the pilot process in the next GRC filing.
3. The ESP issue raised in the Scoping Memo is being resolved in a separate proceeding.
4. The infrastructure of water utilities we regulate, including those of Cal Water, is aging and will require significant infrastructure planning and investment in future years.
5. Health care and retirement expenses will increase as the Baby Boom generation reaches retirement age and health care costs nationwide continue to balloon. Much of Cal Water's rate increase relates to these unavoidable expenses.
6. Cal Water must add a number of new employees to comply with various regulatory requirements.
7. New water quality requirements and the Sarbanes Oxley Act of 2002 account for most of the new proposed hires.
8. The original GRC application seeks to add 148 new employees at the General Office level. Cal Water's existing General Office workforce is 239 employees, so the increase would be more than 60%. The settlement allows for the addition of 59 new employees at the General Office level over three years, an increase of 39%, and 17 employees over DRA's pre-settlement recommendation.
9. DRA and Cal Water agree to conservation budgets that are significantly higher than the expenditures Cal Water has made on conservation activity in prior years.
10. One of the objectives of our 2005 Water Action Plan was to increase water conservation programs to levels comparable to those of energy utilities.
11. The settlement builds in a reporting process and other accountability measures to ensure that Cal Water spends the money budgeted on cost effective conservation.
12. Cal Water will, consistent with the decision in its last GRC, provide a measurement and evaluation proposal for its conservation program within 90 days, and will also file conservation reports in accordance with D.07-12-055.
13. The one-way balancing account treatment DRA and Cal Water have agreed upon for Cal Water's conservation program will protect ratepayers in the event Cal Water under-spends its conservation budget in any of the Eight Districts. Any funds not spent over a set amount will revert to ratepayers, subject to the following conditions. First, any unspent funds will be amortized in the next GRC. Second, the maximum carryover for each of the Eight Districts will be limited.
14. D.07-05-062 stated that water companies shall begin a new long-term planning effort with its first GRC filed after July 1, 2008.
15. The Water rate case plan, D.07-05-062, required the Water Division (now the Division of Water and Audits) to retain its own expert to make an independent assessment of water quality in the districts under consideration in a GRC. DWA was unable to retain an expert in time for this decision.
16. DRA's role does not extend to certifying that Cal Water meets applicable water quality requirements.
17. The settlement provision that 23 of Cal Water's proposed capital projects will be excluded from the company's revenue requirement until they are completed and in service will balance the interests of the public for rate certainty and the interests of the company in recovering the revenue requirement of its investments.
18. We have approved prior settlements between DRA and Cal Water in which Cal Water agreed to the same rate base offset procedure.
19. Livermore residents pay for water service based on 1-inch meters because the City of Livermore requires sprinkler systems for all residential units. Sprinkler systems require a 1-inch metered connection. Customers in that district might not otherwise require a 1 inch meter for their water consumption needs. The 1-inch charge is 250% of the standard 5/8 x 3/4-inch service.
20. Cal Water's notice of proposed rate increases in Salinas and Visalia assumed the rates would be phased in, and that the full increase would not be felt in the first year.
21. We generally settle policy issues applicable to an entire industry in rulemakings.
22. DRA proposes a new method of charging new water system customers for facilities necessary to provide them service.
23. Those water customers who cause Cal Water to incur costs should pay for them.
24. An increase in the per lot special connection fees Cal Water charges new customers in the Chico, Salinas and Visalia districts is warranted by increases in the cost of well construction since the last time the charges in these three districts were reviewed by the Commission.
25. It will improve administrative efficiency in the Visalia district for Cal Water to modify its Tariff Rule 15 to unitize the costs of installing transmission backbone (12" mains) in the Visalia District. Cal Water states it designed this change to improve administrative efficiency in developer transactions in the rapidly-growing Visalia district. Cal Water states it will incorporate limiting language in its tariff that limits the applicability of the unitized transmission fee to new development within a half-mile of the existing system.
26. The Commission approved DRA's method of calculating health care escalation costs in its last two rate case plans.
27. The Global Insight ECIHI health care escalation index has been applied by the Commission to an electric utility, but not to a water utility.
28. The General Office personnel costs Cal Water seeks to allocate to its water districts relate primarily to two new programs Cal Water plans to initiate - its unidirectional flushing program and its cross connection/backflow prevention program.
29. The unidirectional flushing program and its cross connection/backflow prevention will benefit the Redwood Valley/Coast Springs district.
30. The Redwood Valley region is under a service connection moratorium and has water supply problems. It has been the subject of several independent proceedings at the Commission.
31. We have occasionally used an allocation method other than the four-factor method, but those instances are rare.
32. Having the General Office-attributable rate increases effective on advice letter filing, subject to refund, rather than on July 1, 2009 does not put ratepayers in a worse position than they would be if the increases were effective next year. Allowing the increases now will prevent rate shock when increases for a greater period are implemented all at once, rather than over a longer period.
33. The SFPUC Hetch Hetchy water system is not limitless.
1. The Cal Water/DRA settlement, as modified below, is reasonable in light of the whole record, consistent with law, and in the public interest.
2. We should approve the settlement between Cal Water and DRA, with the modifications set forth below.
3. Cal Water should be engaged in long-term water supply planning in all of its districts.
4. The Cal Water/DRA rate base offset pilot program is reasonable, given that it gives us the authority to order refunds with interest if a particular rate base offset is inappropriate.
5. It is important to limit ratepayer funding of certain employee perks and company activities that do not relate directly to their service to ratepayers.
6. It is reasonable for Livermore customers to pay rates based on 5/8 x 3/4-inch service, plus a small surcharge to cover the additional cost of a larger meter, even though they have 1 inch service due to City of Livermore sprinkler system requirements regardless of lot size.
7. The rate increases for Salinas and Visalia should be phased in to mitigate rate shock.
8. Vehicles should be retired according to the Department of General Services vehicle replacement policy as ordered in D.07-12-055 in this proceeding and in subsequent proceedings, unless the Commission later orders otherwise.
9. DRA's new method of charging new water system customers for facilities necessary to provide them service should be vetted in a rulemaking.
10. We should approve the per lot fee increases Cal Water requests for the Chico, Salinas and Visalia districts.
11. Cal Water has not established that it is appropriate to adopt the Global Insight ECIHI in this proceeding.
12. Young has not established that Cal Water should use a three-factor methodology, rather than a four-factor methodology, in allocating General Office costs to the Redwood Valley/Coast Springs district.
13. Cal Water should be allowed, consistent with the Commission's most recent rate case plan decision, D.07-05-062, to file advice letters implementing General Office cost allocations in its 16 districts not included in this GRC.
14. Cal Water should be allowed to explore the possibility of constructing three new wells in the Mid-Peninsula district.
15. It is appropriate for Cal Water to begin the process of locating an alternate source of water supply in the Mid-Peninsula district to the SFPUC Hetch Hetchy system.
16. Those who request a fire-flow test should pay the cost of performing the test.
17. It is reasonable to charge $450 for a fire-flow test in Cal Water's Eight Districts in this GRC.
18. The Commission should order Cal Water to include in its preliminary statement a memorandum account for compliance costs associated with the Federal Groundwater Rule as proposed by DRA.
19. The Commission should order Cal Water to modify its Wausau insurance litigation memorandum account to include remediation capital projects in the Chico District.
IT IS ORDERED that:
1. The settlement agreement between California Water Service Company (Cal Water) and the Commission's Division of Ratepayer Advocates (DRA) is hereby approved.
2. Ninety days after the decision in this application, Cal Water shall file with the Division of Water and Audits a new conservation budget based on the DRA/Cal Water conservation program budget settlement. In addition, Cal Water shall include a measurement and evaluation proposal. Subsequently, on an annual basis Cal Water shall file a measurement and evaluation report. The first measurement and evaluation report shall include conservation program activities for 2008. The first measurement and evaluation report shall be filed on March 15, 2009.
3. Cal Water shall use its March 18, 2008 proposal for measurement and evaluation of its conservation activities in connection with Decision (D.) 07-12-055 as a basis for its measurement and evaluation proposal here, and include any changes ordered in connection with D.07-12-055/Application (A.) 06-07-017 et seq. and incorporated after the March 18, 2008 submission. Cal Water may also modify its March 18, 2008 measurement and evaluation proposal if it sees fit, as long as the proposal is consistent with any orders made in this proceeding or in any other proceeding related to water conservation, such as Investigation (I.) 07-01-022, our Water Conservation OII.
4. Cal Water shall enhance its conservation activities as described in our Water Action Plan and our Water Conservation OII. Cal Water shall spend at or near budgeted levels on sound conservation measures for the Eight Districts at issue in this proceeding (Chico, East Los Angeles, Livermore, Los Altos, Mid-Peninsula, Salinas, Stockton and Visalia).
5. Cal Water shall submit a long-term, 6-10 year Water Supply and Facilities Master Plan to identify and address aging infrastructure needs with its first General Rate Case (GRC) filed after July 1, 2008.
6. The foregoing Water Supply and Facilities Master Plan shall address the water supply concerns Arthur Mangold (Mangold) raises with regard to the Mid-Peninsula district.
7. We decline to find that there are no material water quality problems in the Eight Districts given that our Division of Water and Audits (DWA) was unable to hire an expert to make an independent assessment of water quality in time for this decision.
8. If Cal Water opts to refile for permission to implement an Infrastructure Investment Surcharge Mechanism (IISM), or similar mechanism, it shall address, in detail, the concerns and requests for additional information DRA raised in its testimony on the IISM in this proceeding.
9. In its next GRC, Cal Water shall file a request for review of the rate base offset pilot we approve here. The request shall do the following, at a minimum: (1) list the rate base offsets in the pilot, with citation to the advice letter and resolution numbers, description of the item, and dollar impact, (2) identify the issues raised in any protest filed with regard to a particular advice letter, (3) identify any advice letter found to be subject to refund after a review by the Commission, and (4) explain the basis for the refund.
10. Cal Water shall make a proposal to address customers outside the Livermore district who pay for 1-inch metered service solely to meet fire protection requirements imposed by the local government, and provide customers who request it an opportunity to pay a smaller meter service fee. Cal Water shall research its customer information database, contact cities, and/or conduct sample studies to determine the potential applicability of a "1-inch residential plus fire service" rate in its other districts. It shall also review its tariffs to determine who has such 1 inch fire protection service. The proposal shall explain how Cal Water will account for the cost under-recovery, if any, related to installing and maintaining large meters for fire protection while collecting rates for smaller meter service.
11. Cal Water shall phase in rate increases for Salinas and Visalia to mitigate rate shock.
12. Cal Water shall retire vehicles according to the Department of General Services vehicle replacement policy as ordered in D.07-12-055. This requirement shall apply to this proceeding and to subsequent proceedings, unless the Commission later orders otherwise.
13. Cal Water may increase the per lot special connection fees it charges new customers in the Chico, Salinas and Visalia districts to $1,000, $1,200, and $1,100, respectively, in accordance with the request in its application.
14. Cal Water may modify its Tariff Rule 15 to unitize the costs of installing transmission backbone (12" mains) in the Visalia District. Cal Water shall incorporate limiting language in its tariff that limits the applicability of the unitized transmission fee to new development within a half-mile of the existing system.
15. Cal Water may, consistent with the Commission's most recent rate case plan decision, D.07-05-062, file advice letters implementing General Office cost allocations in all 24 districts. Cal Water has discretion as to which General Order 96-B Tier to file under, but may file under Tier 1 if it elects for purposes of this decision only. The rate increases resulting from the foregoing advice letter filing will go into effect under the GO 96-B rules governing the Tier Cal Water elects to use. If it files under Tier 1, the rates will go into effect immediately, subject to refund until approval by the Commission's Division of Water and Audits.
16. Cal Water's request for funding to begin the process of constructing new wells in the Mid-Peninsula district is approved.
17. The rate tables and tariff sheets at Attachment C are adopted.
18. Cal Water is authorized to file in accordance with General Order 96-B, and to make effective on filing, tariffs containing the 2008/2009 test year increases for its Eight Districts. The revised rates shall apply to service rendered on and after the tariff's effective date.
19. On or after May 1, 2009, Cal Water is authorized to file, in accordance with GO 96-B, an advice letter, with appropriate supporting workpapers, requesting an escalation adjustment to be calculated in conformance with the rate case plan (RCP) and Attachment 3. The filing should include an offset for General Office personnel hired in 2009 and the remainder of the Salinas and Visalia rate phase-ins as agreed in the adopted Settlement. In addition, the Salinas growth factor used in the escalation calculations identified in the RCP should be based on the recorded numbers of customers as shown in Paragraph 4.1.1.2.1 of the Settlement. Cal Water should file a lesser increase in the event that the rate of return on rate base, adjusted to reflect the rates then in effect and normal ratemaking adjustments for the 12 months ending March 31, 2009, exceeds the rate of return found reasonable by the Commission for Cal Water for the corresponding period in A.08-05-002, or the rate of return found reasonable in this case if a decision in A.08-05-002 has not been rendered at that time.
20. On or after May 1, 2010, Cal Water is authorized to file, in accordance with GO 96-B, an advice letter, with appropriate supporting workpapers, requesting an escalation adjustment to be calculated in conformance with the RCP and Attachment 3. The Salinas growth factor used in the escalation calculations identified in the RCP should be based on recorded numbers of customers as shown in Paragraph 4.1.1.2.1 of the Settlement.
21. The surcharge to true-up the interim rates authorized in ALJ Thomas' May 27, 2008 ruling shall be based on the methodology set forth in D.07-12-055 and shall be filed by compliance letter within 60 days of the effective date of this decision.
22. Cal Water is authorized to file Tier 1 advice letters to request amortization of the balancing and memorandum accounts adopted in Paragraphs 5.4 and 5.5 of the Settlement.
23. Cal Water is authorized to file Tier 1 advice letters to adopt a fire-flow testing fee applicable to the districts in this proceeding.
24. Cal Water is ordered to file Tier 1 advice letters within 30 days to include in its preliminary statement: (1) a memorandum account to record costs associated with complying with the Federal Groundwater Rule; (2) a one-way balancing account to record conservation expenses; and (3) modifications to its Wausau Memorandum Account described in the Settlement.
25. Cal Water is authorized to file a Tier 1 advice letter to recover, as a one-time surcharge, the costs of DRA's General Office Audit.
26. We order Cal Water to continue to expense workers' compensation on a PayGo basis and continue to book a regulatory asset for the difference between PayGo and the accrual method.
27. Application 07-07-001 is closed.
This order is effective today.
Dated July 10, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
