2. Background
Southern California Water Company (SCWC) filed this application seeking rate increases for in its Region III service area based on increased costs for, among other things, plant investment, capital, operation and maintenance, and administrative and general. SCWC stated that absent a change in rates, its return on rate base would be 4.62% for 2006, which it asserts would be an unjust and unreasonable return. SCWC also requests authorization for escalation increases, based on the escalation year methodology adopted in Decision (D.) 04-06-018.
The Commission's Office of Ratepayer Advocates (ORA) protested SCWC's application as unreasonable or insufficiently justified.
The Assigned Commissioner and Administrative Law Judge (ALJ) convened a prehearing conference on April 26, 2005. Prior to the prehearing conference, the ALJ issued a ruling noting that the Commission had previously found deficiencies in SCWC's cost allocation to unregulated operations and had ordered SCWC to conduct a cost study and analysis to demonstrate compliance with SCWC's holding company decision.1 The Commission had further directed SCWC to address capital costs and management polices and accounting practices for unregulated operations. The ALJ ruling noted that SCWC's testimony on unregulated operations relied on a cost allocation methodology previously rejected by the Commission, and that it did not address capital costs or management policies and accounting practices.
At the prehearing conference, the Assigned Commissioner, ALJ, and the parties discussed the following:
1. The state of the record on the issue of unregulated operations;
2. Whether a reasonableness review was needed for the Calipatria Treatment Plant in this proceeding;
3. Using the Construction Work in Progress Account to add projects to rate base; and
4. The accuracy of SCWC's lists of primary cost increases and contentious issues in the application.
Based on the prehearing conference discussion, SCWC filed and served supplemental information on May 11, 2005. SCWC substantially revised its list of primary cost increases and contentious issues. The revised primary cost increases are:
Dollar Amount of Increase
Income taxes $3,826,400
Purchased Water $3,590,500
Increased Rate Base $3,126,600
Allocated General Office
Expense $2,312,400
Increased Cost of Capital $1,860,700
Based on new information, SCWC also modified its list of contentious issues to include its proposed return on equity of 11.65%, which is an increase from the previously adopted rate of 9.90%.
Also in its May 11 filing, SCWC explained that it had reviewed the Commission's treatment of the Calipatria water treatment plant in D.04-03-039 and determined that the Commission had not concluded that the plant was a prudent investment. SCWC stated that it was reviewing its direct testimony for compliance with the Commission's directive to justify the recorded expenditures, and consider project alternatives.
The ALJ convened a further prehearing conference on May 31, 2005. The City of Claremont entered an appearance. ORA and SCWC stated that they had reached an agreement in principle to reschedule consideration of SCWC's general office from this GRC to the Region II filing, expected next year. They stated that they expected to embody the agreement in a stipulation to be filed soon.
SCWC stated that it wished to offer additional testimony on the Calipatria treatment plant, and that it had provided ORA all information in the testimony in a data response in April. A schedule was set for distributing the testimony, and for ORA to set forth any objections.
At the second prehearing conference, the parties also discussed SCWC's increase in rate base, including the comparison report of authorized versus actual investment and the nearly $60 million of construction work in progress forecasted to be closed and booked to plant in service in 2005. SCWC stated that it would file and serve supplemental information on these topics.
On June 9, 2005, via electronic mail, ORA notified the assigned ALJ and SCWC that it had reviewed SCWC's proposed supplemental Calipatria plant testimony and that it objected to increasing the final total cost for the Calipatria plant from $16.02 million to $16.9 million. ORA stated that SCWC's application sought only $16.02 million, and that no work papers or other documents supported the new amount.
Public participation hearings (PPHs) are scheduled for Apple Valley, San Dimas, and Placentia, California, with afternoon and evening sessions in each city.
1 See D.04-03-039, SCWC's last Region III general rate case.
