CALIFORNIA PUBLIC UTILITIES COMMISSION
Water Division
STANDARD PRACTICE FOR PROCESSING
CONSUMER PRICE INDEX, RATE BASE
AND EXPENSE
OFFSET RATE INCREASES AND
AMORTIZING BALANCING AND
MEMORANDUM ACCOUNTS
Standard Practice U-27-W
San Francisco, California
Revised August 2001
STANDARD PRACTICE FOR PROCESSING CONSUMER PRICE INDEX, RATE BASE, AND EXPENSE OFFSET RATE INCREASES AND AMORTIZING BALANCING AND MEMORANDUM ACCOUNTS
A - PURPOSE AND DEFINITIONS
1. The purpose of these procedures is to ensure a uniform and complete method of processing offset rate increase and balancing and memorandum account amortization advice letters. All regulated water utilities and the Water Division (WD) engineer or analyst (analyst) shall use these procedures, unless a deviation is approved by the Director of the Water Division.
2. The use of a CPI Offset was approved on March 31, 1992, when the Commission issued Decision 92-03-093 authorizing Class C and D water utilities to file once each year by advice letter for a rate increase based on the most recent year-end increase in the Consumer Price Index for All Urban Consumers (CPI-U) announced by the Bureau of Labor Statistics, U.S. Department of Labor. Any water utility presently not earning the rate of return authorized in its most recent rate case and not subject to a second test year or attrition year adjustment was authorized to file once each year by advice letter for this CPI-U increase. Any utility that misses filing during a year may not file retroactively during the next year. Decision 99-10-064, October 21, 1999 in the Mergers and Acquisition Rulemaking, R.97-10-048, extends this offset to a Class B or A utility that purchases an Inadequately Operated and Maintained Water System (a system with less than 2,000 service connections that had an outstanding order or citation from the California Department of Health Services when it was acquired) for that system's customers up to seven years after the purchase date.
3. A rate base offset may be authorized for Class A utilities only during a General Rate Case. Class B, C and D utilities may file for a rate base offset without prior authorization. Rate base offsets do not have an associated balancing account. As with CPI offsets, any rate base offset that was not authorized in a general rate case requires an earnings test. Rate base offsets are available for used-and-useful utility plant only and the offset may be subject to a saturation adjustment if the facilities are over-built.
4. Expense offsets were authorized by statute in 1976. Expense offsets were originally for electric utilities to track and recover fuel costs. The Commission established rules for applying them to water utilities on June 28, 19771, and rules for calculating them on September 6, 19782. The 1977 policy included a means test (Conclusions and Recommendations, p. 1, recommendation (c)):
"Traditional test for offset proceeding be continued. These require, that with the offset, the rate of return not exceed that last authorized by the Commission and the amount of the offset not exceed the revenue increase(sic.)."
but the 1978 policy did not. The 1978 policy did do the following:
a. "The maintenance of balancing accounts for any given item will start from the date the Commission first authorizes new rates passing through specific changes in cost... all subsequent changes in cost of that item would be recorded in the balancing account as they occur."
b. Utilities should maintain three types of balancing accounts. A balancing account for all types of water production cost offsets including purchased water and purchased power, a balancing account for ad valorem tax offsets and a balancing account for all other types of offsets.
The 1978 policy went out to all Class A and B utilities.
At one time there was a lower limit of 1% and an upper limit of 10% on offsets, but that was modified in 1979 to simply require individual customer notice for increases over 10%3. The 1% lower limit, based on the most recent test year or the most recent annual report revenues, remains4.
The Commission authorized additional changes in the calculation procedure on May 18, 19835. These guidelines clearly show an expense increase followed in a few months by an of-setting revenue increase. They also provide formulas for phasing in the expense revenue increase.
These guidelines were consolidated in 19846. No offsets are allowed if the latest adopted quantities are more than 5 years old (p. 6).
Expense offsets allow a utility to pass on to the customer changes in certain costs that are considered to be beyond the utility's control and in the public interest to allow the utility to recover. Since expense offsets allow dollar-for-dollar recovery of these expenses, they are tracked using a balancing account (see below) and may be booked for accrual recovery when they occur. Off-settable expenses include, for all water and sewer service utilities:
a. purchased power (electricity or natural gas that the utility buys from the energy company),
b. purchased water,
c. groundwater extraction charges (pump taxes), and
d. costs booked to a memorandum account found reasonable for recovery.
Class C and D utilities7 are not covered by attrition and may request an offset for:
e. employee labor,
f. payroll taxes,
g. that portion of contract work that is for operation and maintenance of plant facilities (Class D only),
h. unanticipated repair costs8
5. A balancing account must be used for each offset except CPI and rate base offsets. This account tracks the lost revenue from the time of the change in the offsettable expense until the change is included in base rates, or from the time the memorandum account balance surcharge or surcredit is effective until the end of the surcharge or surcredit recovery period. Also, after base rates have been changed to offset an expense change, the utility tracks the actual extra revenue earned by the incremental rate change against the actual incremental expenses incurred by keeping a balancing account (see Public Utilities Code section 792.5). These balancing accounts are "zeroed-out" as part of a General Rate Case or may be amortized by Advice Letter. Balancing account balances are recovered by means of a temporary surcharge or surcredit.
6. A memorandum (memo) account accrues expenses and the carrying cost and depreciation on capital investments, and offsetting revenues such as insurance proceeds, when authorized by the Commission. Memorandum accounts track costs and revenues as balancing accounts do, but recovery of these costs is not guaranteed, as it is for balancing accounts (after reasonableness review). Example memo account expenses include legal fees, watershed study costs, Department of Health Services costs (except penalties) and other events of an exceptional nature that are not under the utility's control, could not have been reasonably foreseen in the utility's last general rate case, that will occur before the utility's next scheduled rate case9, are of a substantial nature in that the amount of money involved is worth the effort of processing a memorandum account and that have ratepayer benefits10. All new memorandum accounts must be requested by advice letter requesting a change to the preliminary statement to include a description of the memorandum account. All memorandum account recoveries require an earnings test. Some typical existing memorandum accounts include:
Table 1. Example Memorandum Accounts
Title |
Authorized By |
Description |
Termination Date |
Plant Held for Future Use |
D.727189 (September 11, 1967) |
Plant Held for Future Use is not included in rate base, but costs of acquiring and maintaining such property may be tracked in a memorandum account. When the plant becomes used and useful, the memorandum account is used to determine the cost basis. |
None. |
Water Sampling Testing Costs |
Resolution No. W-4013, December 20, 1996 for all utilities. |
Payment of water sampling testing costs and Department of Health Services' fees which are not already covered in rates. |
January 1, 2002 |
Unanticipated Repair Costs |
Decision 93-03-093, March 23, 1992, Ordering Paragraph 2 for Class C and D water utilities; D.99-10-064 for Inadequately Owned and Maintained Water Systems purchased by a Class A or B. |
Repairs necessary for a utility's service to its customers not reflected in rates or recoverable from insurance. |
None for Class C and D. Seven years after date of purchase for Inadequately Owned and Maintained Water Systems. |
Costs associated with its efforts to comply with the fluoridation requirements set forth in AB 733 and Section 116410 of the California Health and Safety Code. |
Resolution W-4227, October 5, 2000 for Citizen's Utilities |
Citizens Utilities' costs to fluoridate water in Sacramento District not included in rates. |
None. |
B - GENERAL PROCEDURE
7. CPI Offsets. Early each calendar year the Water Advisory Branch will prepare a letter to all water and sewer system utilities explaining how to apply for a CPI offset. A utility calculates a CPI offset by multiplying all service and commodity rates in its existing rate schedules by the amount contained in the letter from the Water Advisory Branch.
8. Expense Offsets. When a utility incurs a change in an offsettable expense resulting in an annual revenue requirement change of over 1%, it should submit an advice letter requesting an offset in base rates to account for that change.
9. Balancing Accounts. Pursuant to Section 792.5 of the Public Utilities Code, the utility must establish a balancing account for each item for which revenue offsets have been authorized. The balancing account must be described in the Preliminary Statement of the utility's tariffs. New balancing accounts to amortize memo accounts must be created by decision for Class A utilities and may be created by advice letter for Class B, C and D utilities and become effective on the date the tariff sheet describing the account becomes effective. Any new balancing accounts must be processed by application and decision. The balancing account tracks the revenues recovered by the rate offset and the offsettable costs incurred (See Appendix A). The balance in the balancing account at the end of each month accrues interest at the current 90-day commercial paper rate11.
10. When the total in the balancing account(s) exceeds (positive or negative) 2% of the gross revenue authorized in the last GRC or realized in the last annual report whichever is higher, the balancing account must be amortized. If the balance is less than 2%, the amount will normally not be amortized outside of a general rate case unless some expenses are approaching two years old. Balancing accounts are amortized by a surcharge on the service charge or the commodity charge, depending upon the type of expense being offset12. An overcollection in a balancing account is refunded by a surcredit applied only to service charges13. The balancing account amortization is based on recorded quantities. No resolution is required for balancing account recovery.
11. Surcharges and surcredits are normally described in the Special Conditions section of the applicable tariff sheets. They become effective on the effective date of the tariff sheet. A surcredit will be recovered as soon as possible by reducing the service charge. The approximate length that a surcharge will run (in months) must be included in the description. Surcharge or surcredits terminate automatically when the account has been amortized.
12. Memorandum Accounts. Memorandum accounts must be requested by advice letter and approved by Commission resolution. The advice letter requests that the Commission approve the establishment of the account and adds a description of the account in the Preliminary Statement (see Appendix B). Each request must address the following:
a. The item is caused by an event of an exceptional nature that is not under the utility's control;
b. It cannot have been reasonably foreseen in the utility's last general rate case and will occur before the utility's next scheduled rate case;
c. It is of a substantial nature in the amount of money involved; and
d. The ratepayer will benefit by the memorandum account treatment.
13. Balances in a memorandum account also earn at the 90-day commercial paper rate. Recovery of a memorandum account requires full justification of all expenses and an earnings test for the twelve month period ending when the expense was first incurred. Class A utilities shall provide a weather normalized means test and a summary of earnings. Class B, C and D utilities shall use the information on actual return on equity from their last annual report, updated as necessary. Recovery of memorandum accounts is done by resolution converting the memorandum account to a balancing account and instituting a surcharge or surcredit.
C - FORM AND CONTENTS OF THE ADVICE LETTER
14. Class D utilities may elect to furnish only the following information for offset rate increases:
a. A written request, including an explanation for the increase costs;
b. A tabulation of increases in expenses and revenues;
c. Copies of paid bills and work papers showing calculations in support of items to be recovered.
d. For previously established balancing accounts, a summary with supporting work papers showing over or undercollections in the balancing account.
Staff will prepare the necessary paperwork, i.e., the Advice Letter and Notice to Customers, and provide these documents to the utility. The utility is responsible for the distribution of the notice to its customers.
15. Class B and C utilities may submit two copies of a draft advice letter (proposal), including supporting work papers, to the staff for review (see Appendices B and D). Draft form simply means that the advice letter and the tariff sheets are not numbered, the advice letter is called a draft advice letter, and the date of publication (or distribution) of the Notice to Customers is not filled in. The advice letter must still be typed and all work papers must be legible and logically arranged. The purpose of a draft advice letter is to permit the branch to review the submittal for errors and to eliminate the possible need to reject or supplement a filed advice letter. Exceptions to the draft advice letter procedure will be permitted if, in staff's view, a utility is sophisticated enough to file a normal advice letter. Class A utilities shall submit a regular advice letter.
16. Class A, B and C water companies will provide the information in Appendix C, with all supporting work papers showing insurance recoveries, contracts, costs and calculations. Proof of the underlying expense change such as a copy of the invoice or notice of impending cost change must be included. Class A utilities will include a compact disk or floppy disk copy of all calculations, or e-mail the spreadsheets to water_division@cpuc.ca.gov.
D - PROCESSING THE ADVICE LETTER
17. Expense offset rate increase advice letters should be processed within 30 days. If it becomes evident that the analysis won't be completed in time, the analyst must inform the utility by letter prior to the 30th day, inform the tariff unit so that the information can be published in the Commission Calendar, and inform his or her supervisor, who will inform the Branch Chief. Rate base offset and balancing or memorandum account recovery advice letters will require a resolution.
18. For all advice letters, the analyst will go through the work papers, verifying all calculations, and requesting additional information as necessary, to ensure that the request is just, reasonable and correct. All charges booked to the balancing or memorandum account must be less than three years old unless the costs are fully justified for being older. Normally recovery of memorandum accounts is not allowed if the utility is earning more than its last authorized rate of return and staff may request additional earnings test information if it looks like the request for recovery was delayed until the earnings test could be met, especially if the recovery is over three years old. Legal expense memorandum accounts cannot be recovered until the case is closed if the utility was the defendant. Legal expense memorandum accounts where the utility is the plaintiff may be recovered prior to closure of the case subject to refund. After advice letter approval, the analyst or Senior prepares the resolution, if necessary.
19. For Class B, C and D utilities, after review of the draft advice letter, the staff member will advise the utility to file the final advice letter and to notify its customers of the requested rate increase by sending the utility a filled-in copy of the Cover Letter and the Notice of Proposed Rate Increase (Appendix D); a copy of the filled-out Additional Information sheets (Appendix E); and, if necessary, a corrected draft Advice Letter. The utility then files the advice letter as specified in General Order No. 96 and notices its customers. The engineer or analyst logs in all customer responses received and replies to them.
E - CALCULATING OFFSET RATE INCREASES
20. For CPI offsets, all existing rates amounts are multiplied by one plus the consumer price index for all urban consumers (CPI-U) increase for the previous year expressed as a decimal. The Water Advisory Branch will provide this information to all water utilities early in the calendar year by mail.
21. Calculate rate base (Appendix C-1) and expense offset revenue changes (Appendix C-2) by creating an offset summary of earnings (Appendix C-3). The allowable offsetable amount is added to ratebase or expenses. The depreciation expense is adjusted by multiplying the incremental plant in service by the last approved depreciation factor for the utility or district. The rate of return is that last approved for utility, or, for multi-district utilities, the last approved for the district, whichever is lower. For Class B utilities the rate of return is the last approved for the utility or district adjusted by the same number of basis points that class C and D rates of return have been adjusted over the same period of time. For Class C and D utilities, use the midpoint of the latest Class C and D returns published by the Water Division adjusted by any deviation to the rate of return made in the utility's last general rate case.
22. Expense offset rate increases are based on the Adopted Quantities14 from the last general rate case (GRC) or the Additional Information from the last offset processed. The last GRC proceeding should not be more than five years old. Normally, after five years, the utility no longer qualifies for an offset and must file for a GRC if it wants rates modified to account for cost changes. Exceptions to this procedure will be permitted if, in the view of the staff, unique circumstances exist that argue for continued processing of offset filings.
23. The Adopted Quantities are included as an Appendix to Commission decisions and resolutions for all general rate proceedings and the Additional Information (Appendix E) must be included as an attachment to the advice letter for all offsets. The utility may have to contact the tariff unit to obtain the Additional Information and unit costs to be used for an offset.
24. As stated earlier, an offset rate increase covers changes in costs since the last rate case or offset. For example, if the electric utility's rates are increased by two cents per kWh, a water utility can request a rate increase to offset the increased cost of purchased power. The following sample calculation for purchased power illustrates the procedure:
Adopted Quantities (last general rate proceeding)
a. 1,500,000 kWhs at a unit cost of $0.10 per kWh.
b. 2,000,000 Ccf water sales.
New (current) cost of electrical power
$0.12 per kWh
Increased expense
1,500,000 kWh x ($0.12 - $0.10/kWh) = $30,000
The requested increase in revenue is $30,000 and the requested change in rates (assuming the same incremental increase to the quantity rate) is:
$30,000 = $0.015 per Ccf
2,000,000 Ccf
so the tariff sheets would be changed to reflect a quantity rate $0.015 per Ccf higher than the last adopted rate.
25. Calculation Guidelines for Rate Changes. The following guidelines should be used for calculating the changes in rates.
a. Water Production Expense Changes for a metered system -
Compute an incremental change in cents per Ccf by dividing the annual amount of the cost increase by the adopted annual sales adjusted for unaccounted-for water. Apply this increase to all blocks if multiple block rates still exist.
b. Water Production Expense Changes for a flat rate system -
Compute an incremental change for the flat rate tariffs similar to the computation of a surcharge by dividing the annual amount to be amortized by the number of actual services and the number of billing periods per year. Adjust the surcharge by the same factors as the flat rate schedule itself (by lot size or service size).
c. Non-Water Production Expenses - Compute an incremental change in the flat rate tariff similar to the computation above or in the service charge scaled by the capacity factor equivalents for different meter sizes for metered services.
26. Amortization of Over/Undercollection in the Balancing Account (Metered):
a. For the amount accrued from water production expenses, compute a surcharge in cents per Ccf.
b. For the amount accrued from non-water production expenses, compute a surcharge per customer per billing period, scaled by the appropriate service equivalent capacity factors.
27. Balancing and memorandum account amortization surcharges shall be spread over one year for undercollections of less than 5% of gross revenues, over two years for undercollections of 5% to 10% of gross revenues and over three years for undercollections over 10% of gross revenues.
28. The following rate design policy shall be used for offsets unless there is a valid cause for deviation:
a. No change of rate design (percentage of fixed costs in service charge for metered service) shall be made in an offset rate proceeding.
b. Increases involving water systems that have both flat rate and metered customers should be allocated to those classes so that the metered customer who uses an average amount of water receives the same percentage increase as a flat rate customer.
c. Recovery of balancing account accruals related to water production expenses, shall be recovered through a surcharge on the quantity rates for metered customers. Accruals related to non-water production expenses, such as ad valorem taxes, should be recovered through a surcharge per connection. If the fixed expense changes are a small percentage (less than 10%) of the variable expense changes, or if they would result in a small monthly surcharge (less than $0.50) they may be lumped together, and a single surcharge applied to quantity rates.
d. Surcredits shall apply to service charge only and be designed to return the money as soon as reasonably possible.
29. After the advice letter is approved, the Tariff Unit sends one copy to the utility. The utility can then charge the new, authorize rates for service after the effective date that is shown on the tariff sheets.
F - WEIGHTING FACTORS
30. Because the date of the change in the offsetable expense and the effective date of the new tariff rate may occur during the billing cycle, the utility must weight the new rates by the number of days in the billing cycle and the number of days that the utility may charge the new rate. For utilities that read meters daily the following formulas will be applied when calculating the customer's bill. Utilities that read all meters within a few days may use a straight proportion for calculating the weighting.
a. Weighting Factors--Monthly Billing Cycle
Expense Weighting Factor
EW = (N1 - Ee + 1)/N1
Flat Rate or Service Charge Revenue Weighting Factor
FRW = (N1 - Er + 1)/N1
Metered Revenue Weighting Factor
MRW1 = (N1 - Er + 1)2/(2 x N12)
MRW2 = 1 - [(Er - 1)2/(2 x N1 x N2)]
b. Weighting Factors--Bimonthly Billing Cycle
Expense Weighting Factor
EW = (N1 - Ee + 1)/N1
Flat Rate or Service Charge Revenue Weighting Factor
FRW = (N1 - Er + 1)/N1
Metered Revenue Weighting Factor
MRW1 = (N1 - Er + 1)2/ 2N1 (N1 + N12)
MRW2 = (2N1 + N2 - 2Er + 2) / 2(N1 + N12)
MRW3 = 1 - [(Er + 1)2/ 2 (N1 + N2)N3]
Where:
Ed = Effective date of expense change
Er = Effective date of revenue rate change
Ew = Expense weighting factor
FRW = Flat rate revenue weighting factor
MRW1,2,3 = Metered revenue weighting factor for the first, second and third months
N1,2,3 = Number of days in the first, second and third months.
G - NOTICE AND RESPONSES
31. Although expense balancing account recovery advice letters do not have to be noticed to the customers15, it is good public policy to do so. All advice letters shall use the notice language in Appendix C. The following procedure shall be used to notify the utility's customers:
a. For an increase that results in a rate increase of greater than 10%, the utility shall distribute a notice to all of its customers.
b. For an increase that results in a rate increase of 10% or less, the utility may publish a Notice to Customers in the Official Notice section of a local newspaper of general circulation.
c. For a utility with a significant number of part-time customers or if located in an area not served by a local newspaper, the utility shall distribute a notice to all of its customers.
d. For a decrease in rates (surcredit) no notice is required, but the utility should consider a bill insert explaining the refund if the expense if the insert is not too great.
32. Class B, C and D utilities should not distribute or publish the notice until the staff has reviewed it and informs the utility that it is acceptable. After the notice is distributed or published, these utilities can file the final Advice Letter. The customers then have 20 days from the date the Advice Letter is filed, or twenty days from when the notice is published, whichever is later, to file a protest (see next paragraph). The public can also send responses to the Commission concerning the rate increase.
33. Although letters from customers that complain about rate increases are sometimes called protests, they are not. A protest is defined in Rule 8.1 of the Commission Rules of Practice and Procedure and in G.O. 96, and must be served on the utility, and responded to by the utility within 5 days. Letters to the Commission that object to the advice letters, per G.O. 96, are called responses. Nevertheless these letters are important indicators of the ratepayer's attitude and must be answered immediately. If service or noncompliance is not an issue, the assigned staff shall reply to the customers using the form letter in Appendix F. However, if the customer's letter includes specific questions or complaints, the letter should be modified to include an informed response to each specific item (service, billing or other problems). Additionally, letters of this type should be forwarded to the Consumer Affairs Branch for logging-in (and possibly for handling).
34. In the case of serious service or compliance violations, the utility's rate increase should be made subject to refund until the utility files a plan that addresses the problems. In other instances, the Branch Chief will determine the appropriate course of action.
1. PURPOSE
The purpose of a balancing account is to track the undercollection or overcollection associated with the incidence of an expense change and the authorization of revenue to offset the expense change.
2. APPLICABILITY
Pursuant to Section 792.5 of the Public Utilities Code, a balancing account is to be kept for all expense items for which revenue offsets have been authorized. A separate balancing account must be maintained for each offset expense item. All multi-district water utilities shall maintain separate balancing accounts for each district. Balancing accounts must be kept separate from the general ledger accounts of the utility.
3. START DATE
All water and sewer system utilities shall begin maintaining a balancing account by the procedure described herein as of July 1, 1983.
4. ADOPTED QUANTITIES
Test year customer, expense, investment and revenue projections found reasonable in the latest general rate case decision will be used for the procedures herein.
Balancing accounts maintained beyond the latest test year will use the latest adopted quantities. Those cases where adopted quantities do not exist or where the latest decision is older than five years will be handled on a case by case basis by the Commission staff.
5. EXPENSE COMPONENT
a. Water Production Expenses - The expense component of the balancing account is given by:
Expense Component = Recorded Consumption x Incremental Expense Rate Change
b. Non-Water Production Expenses - The expense component of the balancing account is given by:
Expense Component = Adopted Expense x Percent Expense Change
All expense components are to be booked monthly. In the case of non-water production expenses, it will be necessary to divide the annualized expense change by twelve (12).
6. REVENUE COMPONENT
a. Water Production Expenses - The revenue component of the balancing account is given by:
Revenue Component = Recorded Water Sales x Incremental Revenue Rate Change
b. Non Water Production Expenses - The revenue component of the balancing account is given by:
Revenue Component = Recorded Meter Equivalent Customers x Incremental Revenue Rate Change
7. BALANCING ACCOUNT BOOKING PROCEDURE
Entries shall be made to each individual balancing account at the end of each month as follows:
Water Production Expenses
a. If positive a debit entry, if negative a credit entry, equal to the expense component as calculated in Section 5.
b. If positive a credit entry, if negative a debit entry, equal to the revenue component as calculated in Section 6.
c. The monthly balancing account accrual is the difference between 7a. and 7b.
d. The balance shall be adjusted by multiplying by one plus one-twelfth of that month's 90-day commercial paper rate.
G. CATASTROPHIC EVENT MEMORANDUM ACCOUNT (CEMA):
1. PURPOSE: The purpose of the CEMA is to recover the costs associated with the restoration of service and Any Water Co. facilities affected by a catastrophic event declared a disaster or state of emergency by competent federal or state authorities. The balance in the CEMA will be recovered in rates after CPUC review and audit of the recorded CEMA balance. The authority to establish this account was granted in CPUC Resolution E-3238, dated July 24, 1991 and Public Utilities Code Section 454.9.
Should a disaster occur, Any Water Co. will inform the Executive Director of the CPUC by letter within 30 days after the catastrophic event that Any Water Co. has started booking costs in the CEMA.
2. ACCOUNTING PROCEDURE: Any Water Company (AWC) may maintain a memorandum account for its expenses and other recovery/reimbursements in connection with a catastrophic event as defined in Section 454.9. These expenses must be additional or incremental to those allowed in AWC's last general rate case proceeding. AWC shall make entries to this account at the end of each month as follows:
a. Debit entries equal to the incremental or additional amounts recorded in AWC's operations and maintenance and administrative and general expense accounts that were incurred as a result of the catastrophe.
b. Debit entries equal to the depreciation and/or amortization amounts of new or replacement utility plant installed to continue the provision of uninterrupted services to customers.
c. Debit entries equal to the return on investment on the average monthly balance of new or replacement utility plant installed in (b) above.
d. Credit entries equal to the proceeds reimbursed by the utility's insurance covering such events.
e. Credit or debit entries to transfer all or a portion of the balance in this memorandum account to other adjustment clauses for future rate recovery, as may be approved by the Commission.
In addition, the water utility shall file an advice letter to the Commission detailing any utility plant retired from service and the proposed rate making treatment for such plant.
Any Water Company
Rate Base Offset
Computation of Well Cost
Engineering 20,000
Backhoe Service 6,000
Rock 5,000
Well Cost 500,000
Capitalized Interest 10,000
Total 541,000
Cost of New Construction
Land Acquisition 50,000
Geological Reports 40,000
Cost of Well 541,000
Total Additions 631,000
Depreciation Rate 3%
Annual Depreciation 18,930
Property Taxes @ 1% 6,310
Cost of Offset Filing 1,200
($3,600 amortized over three years)
Return Calculation
Rate Base Increase 631,000
Allowed ROR 10%
Return 63,100
Revenue Requirement Increase
Revenue Increment 63,100
Depreciation 18,930
Property Taxes 6,310
Prep Cost 1,200
Income Taxes 14,959
Annual Revenue
Requirement Increase 104,499
Income Tax Calculations
Revenue Increment
Subject to Income Tax 63,100
State Tax at 8.84% 5,578
Net subj. to Fed. Tax 57,522
1st 50,000 at 15% 7,500
Remaining 7,522
Next 25,000 at 25% 1,881
Total Fed. Tax 9,381
State Tax 5,578
Total Income Tax 14,959
Proof of Income Tax Calculations
Per Res. W-XXXX Requested this Offset
Revenues 989,135 1,093,634
Operating Expenses 720,478 746,918
Advice Letter No. 26
SUMMARY OF EARNINGS - TEST YEAR 1999
($000)
Rates At
Authorized Proposed
Item by D.99-01-001 Increases Rates .
Operating Revenues
General Metered Service $ 6,950.2 $ 285.7 $ 7235.9
Operating Expenses
Payroll 1,530.8 0 1530.8
Purchased Power 1,200.6 280.1 1450.5
Purchased Water 0.0 0.0 0.0
Uncollectables 123.0 5.6 128.6
Depreciation 355.0 0.45 355.45
Payroll Tax 510.9 0 510.9
Taxes - Income 1,040.8 0 1040.8
Total Expenses 5,755.5 280.55 6,036.0
Net Operating Revenue 1,540.7 0 1,549.9
Average Plant 181,733.0 20.0 181,753.0
Average Depreciation Reserve 6,309.0 1.3 6,310.3
Net Plant 175,424.0 18.7 175,442.7
Less: Adv. & Contributions 70,383.0 0 7,038.0
Rate Base 105,041.0 18.7 105,059.7
Rate of Return 11.00% 11.00% 11.00%
Date
Mr./Ms. Owner
Any Water Company
Address
City, State ZIP
Dear Mr./Ms. Owner:
This is to acknowledge receipt of your draft offset advice letter rate increase request dated __________. The Water Advisory Branch has completed its preliminary review of your submittal and finds it complete for filing as of today.
In order to promote greater ratepayer awareness during the rate increase process and to avoid later claims of lack of due process, we require that you provide notice of this increase to afford customers the opportunity to be heard and to ask questions about the proposed increase and the approval process. Please date, fill in the blanks and distribute the enclosed notice.
Since the increase is for less than 10% of your latest recorded gross revenues, please arrange to have the enclosed notice published in the Official Notice section of a newspaper of general circulation in your service territory.
or
Since the requested increase is for more than 10% of your latest recorded gross revenues, please distribute the enclosed Notice to each customer. This may be distributed by mail or otherwise, but should be distributed as soon as possible.
You should also distribute a sufficient number of copies to your customers who submeter others and request that they make a distribution to their submetered users. Please furnish the Commission with a copy of the notice as distributed by enclosing a copy with the four copies of the Advice Letter that you are now authorized to file. Please advise us of the date of such distribution and whether by mail or otherwise.
The Branch will evaluate any letters received from the utility's customers and will correspond with you regarding further processing of your request for an increase in rates.
If you have any further questions, please call me at (415) 703-____. I appreciate your cooperation in this matter.
Very truly yours,
Your name, Your classification
Water Advisory Branch
Water Division
Enclosure
Cc: FLC
____________________
Date
NOTICE OF PROPOSED RATE INCREASE BY ANY WATER COMPANY
Any Water Company is requesting that the California Public Utilities Commission (CPUC) increase its gross revenue by $280,100, or 4% to offset purchased power increases from Southern California Edison Co. and to recover increased water testing costs.
The revenue increase will recover only the added costs discussed above. This increase will not increase Any Water Company's profits.
The present rates have been in effect since January 1, 1999.
A comparison of the rates now authorized and the rates proposed follows:
General Metered Service:
Service Charge:
Per Meter Per Month
Present Proposed
Rates Rates
For 5/8 x 3/4-inch meter. . . . . . . . . $ 15.50 $ 15.70
For 3/4-inch meter. . . . . . . . . $ 16.05 $ 16.30
For 1-inch meter. . . . . . . . . $ 18.25 $ 18.60
For 1-1/2-inch meter. . . . . . . . . $ 21.00 $ 21.45
For 2-inch meter. . . . . . . . . $ 24.85 $ 25.45
Quantity Rate:
All Water, per 100 cu. ft. . . . . . . . $ 1.58 $ 1.60
Balancing Account Amortization surcharge:
All Water sold, per 100 cu. ft. . . . . . $ 0.149 $ 0.164
Protests and Responses
There are two ways to respond to this notice. You can send a protest to the CPUC and the utility, or you can send a response to the CPUC, with a copy to the utility if you wish.
A protest is a document objecting to the granting in whole or in part of the authority sought in this advice letter.
A protest must be mailed within 20 days of the date the California Public Utilities Commission accepts the advice letter for filing. It must state the facts constituting the grounds for the protest, the effect that approval of the advice letter might have on the protestant, and the reasons the protestant believes the advice letter, or a part of it, is not justified. If the protest requests an evidentiary hearing, the protest must state the facts the protestant would present at an evidentiary hearing to support its request for whole or partial denial of the advice letter. The utility must respond to a protest within five days.
A response is a document that does not object to the authority sought, but nevertheless presents information that the party tendering the response believes would be useful to the Commission in acting on the request.
All protests and responses should be sent to:
California Public Utilities Commission, Water Division
505 Van Ness Avenue
San Francisco CA 94102
Fax: (415) 703-4426
E-Mail: water_division@cpuc.ca.gov.
All protests should be sent to this utility to
_____________________, ____________________,
(name) (address)
____________________, ______________________.
(fax number) (e-mail address)
If your have not received a reply to your protest from the utility within 10 business days, contact this person at
____________________. (phone)
Page 1 of 2
WORKPAPERS FOR ADVICE LETTER NO. 26
Rate of Return (Rate Base offsets, CPI offsets and memorandum account recovery only)
1. The recorded rate of return on rate base for the 12 months ending September 1999 is 9.8%.
(Class A utilities only)
2. The recorded weather-normalized rate of return on rate base for the 12 months ending September 1999 is _______.
The weather normalized rate of return is calculated by calculating revenues by multiplying the adopted consumption per customer by the actual number of customers, subtracting the adopted expenses and associated taxes and fees and applying the net revenues to the actual rate base.
Purchased Power
Decision (D.)98-01-001 included Any Water Company rates effective October 1, 1999 of $0.14932/kWh on adopted usage of 2,445,200 kWh. Copies of the Adopted Quantities Tables from D.99-01-001 are attached.
Increases in SCE rates of 0.01018/kWh became effective October 1, 1998. A copy of this tariff (or a bill with the new rate circled) is attached.
Increase in purchased power costs of 24,450,200 kWh x $0.01018/kWh = $240,900.
Ad Valorem taxes have been increased by 0.12% to fund a new school. A copy of the approved county resolution is attached.
Summary of Increased Expenses
Purchased Power $240,900
Ad Valorem Taxes 30,200
Required Rate Increase
$280,100 = 4.04%
$6,950,200
Computation of Rates
Apply purchased power increase to quantity rates and ad valorem increase to service charge rates.
Purchased Power - Quantity Rates
D.99-01-001 included adopted water sales of:
Block 1 0 - 3 Ccf 1,850,160 Ccf
Block 2 Over 3 Ccf 14,560,400 Ccf
16,410,560 Ccf
Increase in quantity rates - use same cents/Ccf increase for all water sales:
$240,900 = $0.0152/Ccf
16,410,560 Ccf
Ad Valorem Tax - Service Charge Rates
D.99-01-001 included adopted customers services of:
5/8 inch meter 50,421
2 inch meter 500
Total 50,921
Total Equivalent 5/8 x 3/4" meters
2" rate = $50.00 = 2.222
5/8" x 3/4" rate 20.25
Total Equivalents
50,921 + (500 x 2.222) = 50,421 + 1,111 = 51,532
$ per meter/year for $3,200 increase
$3,200/51,532 - $0.0587/meter/year
$ per meter/month
$0.587/12 = $0.482/meter/month
Let 5/8 x 3/4 increase by 5 cents
Then 2" = 0.0482 x 2.222 = $0.1071 or 10 cents
Check revenues against increase
5,421 x 0.05 x 12 = $3,253
50 x 0.10 x 12 = $ 60
$3,313
$3,313 revenue
3,200 increase
$ 113 overcollection
Balancing Account Undercollection
The balancing account balance as of September 30, 1999 was $5,100. Since this is less than 2% of gross revenues, no recovery is requested.
Meeting Date ___________
Resolution W-__________
ADDITIONAL INFORMATION
ADVICE LETTER NO: __________
UTILITY: ______________________________________
DISTRICT: __________________________
I. RATE OF RETURN (Rate Base offsets, CPI offsets and memorandum account recovery only)
1. The recorded rate of return on rate base for the 12 months ending ____________________ is _____%.
2. The recorded pro-forma rate of return on rate base for the 12 months ending ____________________ is _____%.
Note: For Class A and B water companies, the recorded rate of return should be relatively easy to obtain. This return should be the latest reasonably available. For Class C and D water companies, the recorded rate of return may be difficult to obtain. However, the engineer should be satisfied that the utility is not over earning.
The pro-forma (or ratemaking) rate of return differs from the recorded rate of return in that the revenues and expenses are normalized for weather. In addition, the pro-forma return reflects the most current expense and tariff rate changes in effect. For Classes B, C and D the pro-forma will not be required.
II. INCREASE REQUESTED BY THIS ADVICE LETTER
Schedule Date
No. Offset Items No. Amount Effective
1. Purchased Power
__________________________________ _______ $______ _______
__________________________________ _______ $______ _______
Total $______ _______
2. Purchased Water
__________________________________ _______ $______ _______
__________________________________ _______ $______ _______
3. Ground Water Charge
__________________________________ _______ $______ _______
__________________________________ _______ $______ _______
4. Amortization of Bal. Acct.
__________________________________ _______ $______ _______
__________________________________ _______ $______ _______
5. Uncollectibles & Franch. Tax
Uncollectibles _______ Concurrent
Franchise Tax _______ Concurrent
TOTAL Expense Offset $______
Balancing Account Status Balance As of
__________________________________ $_______ _______
Comments:
Balancing account is ____% of gross revenues. [This amount is too small to be amortized (<2%). This amount should be amortized over a 12-month period (2% to 5%). This should be amortized over a 24-month period (5% to 10%). This amount should be amortized over a 36-month period (>10%).]
III. CUSTOMER SERVICE
The utility serves approximately _______ customers within the system. A summary of customer complaints received at the Commission for the past 12 months is listed below. This summary relates to both formal and informal complaints. Complaint information is obtained from the formal files, Consumer Affairs Branch and also includes any letters received by the Water Advisory Branch complaining of service. This includes letters protesting the offset requests where service problems are mentioned.
Complaint Number
Service _______
Amount of bill _______
Pressure Leaks _______
Company Practice and Rules _______
Miscellaneous _______
Total _______
Comments: (discuss complaint status and plan to resolve)
_______________________________________________________________________
_______________________________________________________________________
AWC investigates complaints in a timely manner and resolves them to the satisfaction of the customer in almost all cases.
IV. PUMP EFFICIENCIES (not necessary for offsets not related to pumping)
Pump efficiency tests were submitted by the utility as required; the rating of the _______ pumps checked are as follows:
No. of Pumps Qualitative Rating
_______ Excellent
_______ Good
_______ Fair
_______ Low
_______ Not Tested
_______ Total
Comments: (discuss utility's plans for pumps rated low or not tested)
_______________________________________________________________________
_______________________________________________________________________
V. WATER CONSERVATION
Comments:
_______________________________________________________________________
_______________________________________________________________________
Letterhead
Date
Name
Address
City, St ZIP
Dear (Mr./Ms.) Name :
I am replying to your recent letter of ____________ concerning Any Water Company's Notice of Rate Increase.
The Commission staff is now in the process of thoroughly reviewing Any Water Company's request for this offset rate increase. The purpose of this type of increase is to permit a utility to recover, on a dollar-for-dollar basis, increases in (power, water, etc.) costs that are beyond its control. Commission procedures in authorizing offset increases ensure that the utility receives no profit from the increase.
Thank you for your time and concern.
Very truly yours,
_____________, (Analyst, Utilities Engineer)
Water Advisory Branch
Water Division
Letterhead if available
Advice Letter No. 26 Any Water Company (U 456 W) November 5, 1992
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ANY WATER COMPANY, requests ministerial review and approval of the following changes in tariff sheets applicable to __________.
(District)
C.P.U.C. Canceling
Sheet No. Title of Sheet C.P.U.C. Sheet No.
119-W Schedule No. 1, General Metered Service 106-W
120-W Table of Contents 117-W
The effective date of the tariff schedule is requested to be _________.
Notice has been provided as required by GO 96. The Service List is attached to this Advice Letter (or) This advice letter was served on the same parties a Advice Letter (or Decision) #___________, dated __________.
The purpose of this advice letter is to include in rates the following increases in costs: (list increases by source, date and amount.)
(Justification for DHS Offset)
Assembly Bill 2995, in adding Section 4019.10 to the California Health and Safety Code, directs the Department of Health Services (DHS) to charge the utilities within its jurisdiction for all operating costs. The legislation also authorized these costs to be passed on to those utilities' customers. Commission Resolution W-4013, dated December 20, 1996, authorizes Any Water Company to file the attached rate schedules, and to concurrently withdraw and cancel its present schedules for such service.
Any Water Company, Inc. had duly established the required memorandum account and recorded therein the amount of $_______ representing expenses for DHS paid by the company.
Any Water Company, Inc. requests permission to recover the above charges from its ________ customers by adding an annual one time surcharge of $_______ to each customer's bill. Workpapers justifying this charge have been provided to the CPUC Water Branch Staff.
There have been no other compensating changes in the company's revenues, remaining operating expenses or rate base that would offset the impact on earnings of these increases.
The Company's present General Metered Service rates became effective January 1, 1999, pursuant to Decision (D.) 99-01-001, in Application (A.) 98-06-001.
It has been determined that a 4.0% increase in gross revenues amounting to $280,100 is required to offset the increased expenses.
The Commission staff has been provided with supporting workpapers showing the derivation of these quantities.
The actions requested in this advice letter are not now the subject of any formal filings with the California Public Utilities Commission, including a formal complaint, nor action in any court of law.
Protests and Responses
A protest is a document objecting to the granting in whole or in part of the authority sought in this advice letter. A response is a document that does not object to the authority sought, but nevertheless presents information that the party tendering the response believes would be useful to the Commission in acting on the request.
A protest must be mailed within 20 days of the date the California Public Utilities Commission approves this advice letter for filing. It must state the facts constituting the grounds for the protest, the effect that approval of the advice letter might have on the protestant, and the reasons the protestant believes the advice letter, or a part of it, is not justified. If the protest requests an evidentiary hearing, the protest must state the facts the protestant would present at an evidentiary hearing to support its request for whole or partial denial of the application.
All protests or responses to this filing should be sent to:
California Public Utilities Commission, Water Division
505 Van Ness Avenue
San Francisco CA 94102
Fax: (415) 703-4426
E-Mail: water_division@cpuc.ca.gov,
and to this utility to ______________________, _______________________,
(name) (address)
________________________________, ______________________.
(fax number) (e-mail address)
If your have not received a reply to your protest within 10 business days, contact this person at ____________________.
(phone)
