II. Background and Procedural History
San Gabriel is a Class A water company with two operating divisions - the Los Angeles Division serving 47,000 customers and the Fontana Division serving 37,000 customers. This proceeding involves the Fontana Division only. San Gabriel is also affiliated with the Arizona Water Company operating outside the Commission's jurisdiction.
On July 31, 2002, San Gabriel filed its Notice of Intention to File General Rate Increase Application (NOI). Customers were advised of the proposed rate increase through publication and bill inserts. On November 25, 2002, San Gabriel filed the above-captioned application seeking rate increases in its Fontana Division to produce an overall annual rate of return of 11.03% for the period 2002-2006.
San Gabriel stated that its revenue must be increased to enable it to meet expenses of furnishing water service to its customers, to maintain financial integrity and credit, to obtain and retain capital at reasonable costs, to continue compliance with all existing and emerging safe drinking water quality standards, and to provide a reasonable rate of return on investment. San Gabriel particularly emphasized the increasing costs of required water treatment to remove contaminants from groundwater supplies.
The assigned Administrative Law Judge (ALJ) held a prehearing conference (PHC) on May 5, 2003 in Fontana. Following the PHC, a Scoping Memo and Ruling of Assigned Commissioner and Administrative Law Judge was issued on May 20, 2003. The ruling confirmed the categorization of this proceeding as ratesetting pursuant to Pub. Util. Code § 1701.3, and Commissioner Peevey designated Administrative Law Judge (ALJ) Kathleen C. Maloney as the principal hearing officer. The proceeding was reassigned to ALJ Bertram D. Patrick in June 2003.
On July 31, 2003, the Commission's Office of Ratepayer Advocates (ORA) distributed its report. ORA recommended that rates in 2003 should be reduced by 7.35%. For 2004, ORA recommended an increase in rates of 2.2% above those authorized for 2003 and a decrease of 1% in each attrition year 2005 and 2006. ORA provided supporting analysis showing major adjustments to San Gabriel's proposal, including higher estimates of revenue, lower estimates of operating costs, lower forecasts of plant additions, and lower costs of capital. ORA also recommended that Fontana Division rate base be reduced by $15.1 million to account for condemnation proceeds received by San Gabriel, which ORA believes should be flowed through to ratepayers.
The City of Fontana (City) and the Fontana Unified School District (School District) actively participated in opposing San Gabriel's proposed rate increase. Both City and School District provided expert witnesses to rebut San Gabriel's showing.
Evidentiary hearings were held from September 15 through 18 in San Francisco, from September 29 through October 1 in Fontana, and on October 8, 2003 in San Francisco. The City, San Gabriel, School District and ORA filed concurrent opening briefs on November 21, and concurrent reply briefs on December 12, 2003, after which this matter was submitted for decision.
By ALJ ruling, the submission date of December 12, 2003, was set aside for purposes of addressing ORA's motion for sanctions for violation of the Commission's Rule 1. The new submission date for this proceeding is February 5, 2004. Oral argument was held before the Commission on April 14, 2004, in San Francisco.
