11. Assignment of Proceeding
Susan P. Kennedy is the Assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding.
1. Cal Water must improve its initial showing in future rate cases.
2. Cal Water and ORA reached a joint recommendation to resolve most, but not all, outstanding issues in this proceeding.
3. Comments from members of the public opposed Cal Water's initial proposed rate increase.
4. The Joint Recommendation sets forth a rate increase that is substantially less than Cal Water's initial proposal and was the result of negotiation and compromise between the parties after all testimony had been filed.
5. ORA, Cal Water, Aglet, and North Ranch agreed on a proposal for reclaimed water rates in the Westlake District that reduces the proposed reclaimed water rate increase by 20% but only insofar as the resulting rate would not be less than the current rate.
6. All costs attributable to non-utility functions must be directly allocated to non-utility accounts. To the extent such allocation is not feasible, a cost allocation methodology must be used that fairly assesses indirect costs.
7. The record does not contain an allocation methodology for in-state affiliate operations.
8. We have previously rejected cost allocation methodologies for affiliates that use accumulated assets as a significant factor.
9. Management and employee time spent on a non-utility project is an incremental cost of the project.
10. Cal Water general office and its corporate affiliates share office space, receptionist, telephone system, and web site.
11. Cal Water has not demonstrated management policies and accounting safeguards to ensure that ratepayers are not subsidizing its affiliate operations.
12. Cal Water did not provide data, calculations, or an explanation for its determination that 4.595% of the general office rate base should be allocated to unregulated in-state operations.
13. ORA used the four-factor analysis to determine that Cal Water's out-of-state utility operations should be allocated 3% of the general office rate base.
14. ORA and Cal Water recommended that 7% of General Office rate base should be allocated to unregulated operations. A better estimate is based on adding Cal Water's and ORA's estimates and rounding to 8%.
15. Cal Water proposed substantial increases in general office expenses and rate base.
16. ORA's testimony stated that Cal Water sought 40 new employees from 2001 to 2003, and the Joint Recommendation provided for 23 new positions and three upgrades.
17. The 3% labor inflation factor for 2001 and Test Years 2002 and 2003 in the Joint Recommendation is less than ORA's labor inflation increase.
18. Cal Water did not provide a sufficient justification for a 30% increase in the office expense category for the general office, a rate which substantially exceeds ORA's and Cal Water's inflation forecasts.
19. The ORA non-labor inflation rate plus customer growth (.9% per year) is a reasonable escalation factor for office expenses.
20. The Joint Recommendation provided for general office outside service expense to increase by 36% from 2000 to 2002.
21. Cal Water used an average of historic increases in office expenses to justify its requested increase in outside service expense; historic averages have limited usefulness where there is no attempt to remove nonrecurring costs, additional employees have been hired to perform a portion of the tasks previously performed by outside consults, and the utility is engaged in closely related non-regulated operations.
22. The California Water Service Group board of directors provides benefits to ratepayers.
23. The Joint Recommendation provides for general office rate base additions that are substantially less than that sought by Cal Water and that reflect a project-by-project review by ORA.
24. Over the ten-year period 1991-2000, Cal Water's budgeted capital expenditures exceeded actual expenditures by an average of 3.1%.
25. The web site www.calwater.com leads to the home page of Cal Water's holding company, California Water Services Group, which contains substantial information for investors and prospective customers of utility affiliates. Almost all the content of the web site is institutional or good will advertising. Information and services for Cal Water's California customers form a small portion of information on the web site. The logos of all the affiliates are present on all pages of the web site.
26. The record shows neither an allocation of web site capital costs and expenses to affiliates nor a disallowance for institutional or goodwill advertising.
27. Cal Water historically has not implemented its capital projects as planned if a more pressing project arises.
28. Cal Water's goal for its small main replacement program is to replace all undersized and bare steel mains in the next 50 years.
29. Cal Water's overall main replacement program projects replacement of all mains in the system in 307 years.
30. ORA's study showed that Cal Water actually installed only 11% of budgeted main replacements in 2001.
31. Cal Water is seeking a 60% increase in its main replacement budgets, an unprecedented increase.
32. Commission Standard Practice U-4, Determination of Straight-line Remaining Life Depreciation Accruals, Revised January 3, 1961, states that the longest projected actual service life for any type of main is about 100 years.
33. The commercial real estate market where the Bear Gulch customer service center is located was very tight when Cal Water signed the current lease. That market subsequently softened quite a bit but Cal Water has made little effort to modify the lease although rental office space is available in the Bear Gulch district at rates substantially less than the rate provided in Cal Water's lease.
34. Cal Water reported the Livermore station 23 tank painting capital project for to ORA as $84,400.
35. Cal Water's tank and reservoir inspection and re-painting program endeavors to proactively maintain the tanks and reservoirs to reduce costs over the life of the tank or reservoir.
36. Cal Water's contracted maintenance forecast for its Los Altos district uses an average of five years of historical expenditures, without accounting for new maintenance employees authorized, and ORA's forecast is based on four years' data. Tank 1 in the Willows district has been in service since 1921 and has rust and primer exposed in 10-15% of the roof area.
37. Cal Water's forecast for contracted maintenance in its Mid-Peninsula district is based on historic expenditures from 1996 to 2000; ORA did the same but used the years 1995 to 1999.
38. Several unpredictable factors affect contract maintenance expense.
39. Cal Water has not presented definitive plans for the location, size, and cost of its new operations center in the Mid-Peninsula district.
40. Cal Water did not include the July 1, 2002, postage increase in its application or in its updated tables; Cal Water did not obtain permission to update postage expense.
41. Cal Water does not provide customers the option of taking service through a ¾ inch meter.
42. The standard flow rate for 5/8 inch meter is 20 gallons/minute, but that current meters typically provide about 25 gallons/minute. The standard flow rate for a ¾ inch meter is 30 gallons/minute, and current meters typically provide about 35 gallons/minute. The service charge for a ¾ inch meter is 50% greater than a 5/8 inch meter.
43. Cal Water did not present sufficient evidence to support its proposed low-income tariff.
44. Attachment E shows summaries of earnings for all districts, and attachment F show tariff sheets. Attachments G through W show adopted quantities and attachment X is a bill comparison for each district.
45. Cal Water should file attachments corrected to conform to today's decision on General Office Outside Services.
1. The Salinas application, A.01-09-071, should be removed from this consolidated proceeding.
2. As set out above, the rate increases included in this consolidated proceeding should be approved.
3. Cal Water bears the burden of proof in this proceeding; Cal Water must present a prima facie showing that justifies its proposed rate increase.
4. All public utility rates must be just and reasonable.
5. All general office costs must be allocated to those operations subject to Commission rate regulation and those that are not.
6. Where a regulated public utility with a Commission-approved holding company structure chooses to co-locate facilities with its affiliates, the utility must maintain scrupulous records and cost accounting to demonstrate convincingly that ratepayers are not subsidizing affiliate operations.
7. In D.97-12-011, the Commission approved a settlement agreement, the purpose of which was to establish procedures for prompt and fair compensation or reimbursement for all assets, goods, and services transferred between Cal Water and its affiliates.
8. All management and employee time spent on non-utility projects must be carefully accounted for and allocated only to shareholders.
9. D.00-07-018 established rules and procedures for water utilities to offer non-tariffed services that use excess capacity of regulated assets and employees. That decision applies to utility non-tariffed projects only and has no applicability to affiliate projects; it also directs that shareholders absorb all incremental costs of non-tariffed projects. D.00-07-018 left to future rate cases, such as this one, to consider the issue of whether or to what extent rates should reflect investments made and costs incurred for labor and capital jointly used for tariffed and non-tariffed products and services.
10. All known test year contracts for non-tariffed products or services that rely on assets included in a utility's revenue requirement should be allocated a share of the capital costs of the asset.
11. Cal Water's general office rate base should be reduced by 1% to reflect our determination of the unregulated operations adjustment.
12. D.97-12-011 requires that Cal Water's corporate affiliates compensate it for utility services at the higher of cost or market.
13. Pursuant to Rule 73, we may take official notice of the California Water Service Group's 2001 Annual Report to Shareholders and the internet web site www.calwater.com.
14. The fact that the Joint Recommendation's general office payroll increases are less than ORA's labor inflation rates is sufficient evidence that the majority of the new employees and position upgrades provided for in the Joint Recommendation are reasonable.
15. Cal Water has demonstrated that it needs a second additional rate analyst, and its request should be granted.
16. The costs of an electro-mechanical technician position should be excluded from this proceeding.
17. The Joint Recommendation's amount for office expenses in the general office is excessive and unreasonable, and should be rejected.
18. Aglet's proposal to escalate office expenses in the general office by ORA's inflation rates plus customer growth of 0.9% per year is reasonable and should be adopted.
19. The Joint Recommendation's amount for outside services in the general office is not reasonable and should be rejected.
20. Aglet's recommendation for outside services expense should be adopted.
21. ORA's request to disallow the costs of the California Water Services Group board of directors should be denied.
22. The general office capital additions amount in the Joint Recommendation should be reduced by 3.1%; with that reduction, the amount is reasonable and should be approved.
23. All capital costs and expenses for the current web site www.calwater.com should be disallowed for ratemaking purposes.
24. Cal Water should revise its advertising for its affiliates to comply with the letter and spirit of Commission policies.
25. Cal Water should revise is entire presence on the internet to clearly separate regulated operations from non-regulated and to provide useful information and services to customers.
26. Cal Water has met its burden of demonstrating that its proposed main replacement program is necessary to provide just and reasonable service to its customers.
27. Cal Water should submit a report in its next general rate case showing its budgeted capital projects and actual expenditures.
28. Cal Water has failed to meet its burden of showing that its Bear Gulch office rent is reasonable.
29. A reasonable rent for office space in the Bear Gulch district is $3.00 per square foot.
30. Cal Water should file an application detailing its proposed replacement of the Chico Operations Center.
31. The Infrastructure Act requires water utilities to sell unneeded real property that was at any time included in rate base and to re-invest the net proceeds in water utility infrastructure. All such revenue must be tracked and included in a memorandum account.
32. The Commission has exclusive authority to determine the used, useful, or necessary status of any and all infrastructure improvements and investments.
33. The Infrastructure Act requires that water utilities:
a. Track all utility property that was at any time included in rate base.
b. Maintain sales records for each property that was at any time in rate base but which was subsequently sold to any party, including a corporate affiliate.
c. Obtain Commission authorization to establish a memorandum account in which to record the net proceeds from all sales of no longer needed utility property.
d. Use the memorandum account fund as the utility's primary source of capital for investment in utility infrastructure.
e. Use the memorandum account fund as the utility's primary source of capital for investment in utility infrastructure.
f. Invest all amounts recorded in the memorandum account within eight years of the calendar year in which the net proceeds were realized.
34. Cal Water should file an application setting up an Infrastructure Act memorandum account with an up-to-date accounting of all real property that was at any time in rate base and that Cal Water has sold since the effective date of the Infrastructure Act. Such application shall also include all details on Cal Water's real estate program as set out in the text of this decision. The transactions should be recorded on a district-by-district basis.
35. The Livermore station 23 tank-painting project should be included at $84,400.
36. Cal Water has met its burden of demonstrating that it has a sound tank and reservoir inspection program, and that (1) Hermosa-Redondo tank 5B and C and reservoirs 3B and 8A-D, (2) tank 3 and reservoirs 10 A and B in the Stockton district, and (3) tank 1 in the Willows district all require painting.
37. ORA's forecast of Los Altos contracted maintenance is reasonable and should be adopted.
38. Cal Water has not met its burden of demonstrating that its forecast of Mid-Peninsula contracted maintenance expense is superior to ORA's; we should adopt ORA's forecast.
39. Cal Water has not met its burden of showing that the new Mid-Peninsula district operations center is needed and components of the project are reasonable; therefore, this part of the Joint Recommendation should not be approved.
40. The Rate Case Plan allows for updates 30 days after filing and/or with the permission of the ALJ.
41. The Joint Recommendation would allow for updating postage expense, but no other expenses, in violation of the Rate Case Plan; consequently, this portion of the Joint Recommendation cannot be approved.
42. Customers should have the option of selecting service from a ¾ inch meter.
43. With the exceptions noted above, the Joint Recommendation is reasonable in light of the record, consistent with the law, and in the public interest.
44. The revenue increases reflected in the Joint Recommendation, as modified by this decision, will result in just and reasonable rates for Cal Water's Districts in this proceeding.
45. The reclaimed water rate recommended by the parties is reasonable in light of the record, consistent with the law, and in the public interest.
46. The rates reflected in the Reclaimed Water Joint Recommendation will result in just and reasonable reclaimed water rates.
47. The revenue increases reflected in the Joint Recommendation, as modified by this decision, should be approved for Cal Water's Districts in this proceeding.
48. Cal Water's proposed low-income tariff should not be approved.
49. This decision should be effective immediately.
IT IS ORDERED that:
1. The Salinas Application 01-09-071 is removed from this proceeding.
2. As modified by this decision, the Joint Recommendation between California Water Services Company (Cal Water) and the Office of Ratepayer Advocates is adopted.
3. In all future general rate case applications, Cal Water shall present an initial showing with the major changes that led to the requested change identified and quantified. Each issue should include detailed explanations and justifications for the requested change, with cross-references to evidentiary support. All tables of data should be explained and analyzed. All necessary evidence should be included in the record.
4. Cal Water shall keep its personnel and assets physically separate from its corporate affiliates to the maximum feasible extent. Where such physical separation is not feasible, Cal Water shall develop and implement management and accounting policies and procedures to ensure that ratepayers are not subsidizing unregulated operations.
5. Cal Water shall carefully account for and directly charge to the applicable affiliate at the higher of market price or fully allocated cost all management and employee time spent on affiliate endeavors. Such charges shall be paid within 45 days.
6. Cal Water shall carefully account for and directly charge non-utility accounts for the fully allocated cost of all utility management and employee time, as well as any incremental cost of facilities or equipment, used for utility non-tariffed endeavors. Such charges shall be paid within 45 days.
7. Cal Water shall comply with the annual report requirement of Decision 00-07-018, and shall remedy any past non-compliance as soon as possible. Such reports shall include detailed accounting for all costs and revenue.
8. In its future general rate case filings, Cal Water shall include an allocation of any regulated asset's capital costs to all known test year contracts for non-tariffed products or services that rely on that asset.
9. No later than 180 days after the effective date of this order, Cal Water shall revise its entire presence on the web to clearly separate regulated operations from non-regulated and to provide useful information and services to regulated utility customers.
10. In all future general rate cases, Cal Water shall include a report showing its budgeted capital projects and actual expenditures.
11. Cal Water shall file an application for authority to replace its Chico Operations Center.
12. In compliance with the Water Utility Infrastructure Act, Cal Water shall:
a. Track all utility property that was at any time included in rate base.
b. Maintain sales records for each property that was at any time in rate base but which was subsequently sold to any party, including a corporate affiliate.
c. Obtain Commission authorization to establish a memorandum account in which to record the net proceeds from all sales of no longer needed utility property.
d. Use the memorandum account fund as the utility's primary source of capital for investment in utility infrastructure.
e. Invest all amounts recorded in the memorandum account within eight years of the calendar year in which the net proceeds were realized.
13. Within 90 days after the effective date of this order, Cal Water shall file an application setting up an Infrastructure Act memorandum account with an up-to-date accounting of all real property that was at any time in rate base and that Cal Water has sold since the effective date of the Infrastructure Act. The application shall also include all required information on Cal Water's real estate program on a district-by-district basis. In each district with a net proceed balance, the next general rate case for that district must show that the net proceeds are being used as the district's first source of capital to fund any needed infrastructure additions.
14. Within 180 days of the effective date of this order, Cal Water shall offer all customers the option of selecting service from a ¾ inch meter.
15. Cal Water is authorized to file in accordance with General Order (GO) 96-A, and to make effective on not less than five days' notice, tariffs containing the test year 2003 increases for its districts as provided in attachments to this decision, corrected to reflect today's decision on outside services. The revised rates shall apply to service rendered on and after the tariffs' effective date.
16. Advice letters for authorized rate increases for 2004 and, unless the Commission changes the schedule, 2005, may be filed in accordance with GO 96-A no earlier than November 1st of the preceding year. The filing shall include appropriate work papers. The increase shall be the amount authorized herein, or a proportionate lesser increase if Cal Water's rate of return on rate base, adjusted to reflect rates then in effect, normal ratemaking adjustments, and the adopted change to this pro forma test, for the 12 months ending September 30th of the preceding year, exceeds 8.9%. The advice letters shall be reviewed by the Commission's WD for conformity with this decision including the applicable provisions of the Joint Recommendation, and shall go into effect upon WD's determination of compliance, not earlier than January 1st of the year for which the increase is authorized, or 30 days after filing, whichever is later. The tariffs shall be applicable to service rendered on or after the effective date. WD shall inform the Commission if it finds the proposed increase does not comply with this decision or other Commission requirements.
17. Cal Water is authorized to file an advice letter to recover the retroactive amounts allowed by D.03-04-033 over no less than one year. The advice letter filing shall include all supporting data and calculations, and shall be based on the methodology adopted in D.03-08-069. This advice letter filing may be combined the advice letter authorized in Ordering Paragraph 15.
18. Cal Water's proposed low-income tariff is rejected. Within 180 days of the effective date of this order and in consultation with the Commission's Water Division, Cal Water shall file an application with a low-income water rate proposal that fully and completely addresses the matters discussed in this Order and contained in Pub. Util. Code § 739.8 including but not limited to: availability of the program to all low income families served with water directly or indirectly
by Cal Water; costs of the program; conservation effects of the program; and ratemaking treatment of program costs.
19. This proceeding shall remain open as provided in the Joint Recommendation paragraph 5.01.
This order is effective today.
Dated ________________________, at San Francisco, California.
Attachment A
(Page 1)
Comparison of Rate Changes Provided In Cal Water's Applications, ORA's Report, and the Joint Recommendation
Hermosa/Redondo |
||||
2002 |
16.12 |
5.4 |
12.84 |
12.61 |
2003 |
3.43 |
1.84 |
.9 |
.71 |
2004 |
3.1 |
NA |
.7 |
.5 |
2005 |
3.0 |
NA |
.7 |
.5 |
King City |
||||
2002 |
26.35 |
1.82 |
15.68 |
15.41 |
2003 |
6.16 |
6.03 |
3.68 |
3.67 |
2004 |
5.6 |
NA |
3.5 |
3.5 |
2005 |
5.4 |
NA |
3.4 |
3.4 |
Livermore |
||||
2002 |
5.7 |
- 5.7 |
.02 |
1.4 |
2003 |
2.5 |
1.37 |
2.1 |
2.0 |
2004 |
.8 |
NA |
2.1 |
2.0 |
2005 |
.8 |
NA |
2.0 |
2.0 |
Los Altos |
||||
2002 |
14.54 |
.13 |
7.4 |
6.96 |
2003 |
4.22 |
1.56 |
2.42 |
2.4 |
2004 |
.6 |
NA |
2.3 |
2.3 |
2005 |
.6 |
NA |
2.3 |
2.3 |
Marysville |
||||
2002 |
28.06 |
0.13 |
20.05 |
19.78 |
2003 |
16.47 |
7.54 |
8.32 |
8.33 |
2004 |
18.5 |
NA |
7.6 |
7.6 |
2005 |
16 |
NA |
7.1 |
7.1 |
Mid-Peninsula |
||||
2002 |
12.5 |
.51 |
5.61 |
5.2 |
2003 |
4.52 |
.68 |
.91 |
.86 |
2004 |
6.5 |
NA |
1.3 |
1.3 |
2005 |
6.2 |
NA |
1.3 |
1.2 |
Attachment A
(Page 3)
Stockton |
||||
2002 |
11.28 |
- .46 |
8.23 |
7.94 |
2003 |
2.54 |
1.23 |
1.47 |
1.34 |
2004 |
1.47 |
NA |
1.6 |
1.5 |
2005 |
1.47 |
NA |
1.6 |
1.4 |
Visalia |
||||
2002 |
11.07 |
-4.96 |
5.85 |
5.25 |
2003 |
1.27 |
2.11 |
1.34 |
.81 |
2004 |
1.2 |
NA |
1.3 |
.8 |
2005 |
1.2 |
NA |
1.3 |
.8 |
Westlake |
||||
2002 |
14.86 |
2.89 |
8.95 |
8.76 |
2003 |
2.74 |
1.84 |
.9 |
.82 |
2004 |
2.6 |
NA |
.6 |
.6 |
2005 |
2.5 |
NA |
.6 |
.6 |
Willows |
||||
2002 |
17.1 |
5.43 |
11.77 |
11.48 |
2003 |
6.1 |
3.65 |
3.42 |
3.09 |
2004 |
7.6 |
NA |
2.6 |
2.3 |
2005 |
7.1 |
NA |
2.5 |
2.3 |
(End of Attachment A)
Attachment B
JOINT RECOMMENDATIONS OF THE
OFFICE OF RATEPAYER ADVOCATES AND
CALIFORNIA WATER SERVICE COMPANY
IN APPLICATION 01-09-062 et al
JOINT RECOMMENDATIONS OF THE
OFFICE OF RATEPAYER ADVOCATES AND
CALIFORNIA WATER SERVICE COMPANY
IN APPLICATION 01-09-062 et al
