6. Comments on Proposed Decision
The proposed decision of ALJ Vieth in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Commission's Rules of Practice and Procedure. Comments were filed on _____________ and replies were filed on _____________.
1. Recovery of litigation costs at trial is uncertain in lawsuits such as the Cordova system groundwater contamination complaints that SCWC filed against the State and Aerojet.
2. SCWC's research shows that Aerojet typically has been disinclined to settle, since it has received reimbursement from the Department of Defense of 88% of its legal costs in litigation such as the Cordova system groundwater contamination lawsuit.
3. If the contamination plumes move, SCWC may be forced to take additional wells out of service. The Aerojet settlement provides for recovery of 100% of SCWC's costs in this event.
4. The various supply agreements which implement the Aerojet settlement will enable SCWC to satisfy the 20,200 acre-feet of demand at build-out for its existing service area, as projected in the applicable Water Supply Assessment.
5. The melded costs per acre-foot of groundwater supplies treated at SCWC's Coloma Treatment Plant will be less expensive than production of groundwater through new wells financed by SCWC.
6. A "self-cure" solution to the groundwater contamination (i.e., deciding to avoid litigation and focusing on developing alternative, surface water supplies) would have cost SCWC ratepayers about $274 million (2004).
7. By litigating to the end, SCWC would have faced increased litigation costs and uncertainty; a judgment might have provided money but no guarantee of replacement water supplies.
8. There is no dispute between SCWC and ORA about the debits and credits to the "Capital Projects" portion of the memorandum account.
9. Aerojet has reimbursed SCWC for all but about $8 million in capital expenditures and has guaranteed reimbursement of that $8 million, plus interest at 5% compounded monthly, in five roughly equal installments between 2009 and 2013. Any WAF monies collected prior to each installment date will be applied toward that installment, and Aerojet will make up any shortfall.
10. Carrying costs on unreimbursed capital expenditures should be allowed as a debit in the "Costs" section of the memorandum account through December 31, 2003, but should be removed from January 1, 2004 forward, together with interest on those unreimbursed capital costs.
11. The Aerojet settlement provides potential reimbursement toward litigation expenses of $17.5 million, plus interest at the three-month commercial paper rate, depending upon the pace of development of Aerojet's property West of Hazel and the rate of collection of WAF monies.
12. Because the $17.5 million is a contingent payment, the memorandum account should be credited as WAF monies are received.
13. Under the applicable Financial Accounting Standards (FAS 5 and FAS 71), absent authorization to amortize at least $15 million of the memorandum account balance, and to collect that amount in its customers' rates, SCWC faces a significant likelihood of having to write-off at least $11 million.
14. The memorandum account balance shown in Appendix A to this decision should be amortized in customers' rates over 20 years.
15. If SCWC receives WAF monies at a rapid rate, ratepayers' amortization obligations should be minimized by reducing ratepayer' monthly bills more quickly than once-in-three years.
1. The Commission has no jurisdictional need to approve SCWC's settlements with the State and with Aerojet.
2. As shown in Appendix A to this decision, which limits the debits for carrying costs on capital expenditures and associated interest to the period ending December 31, 2003, the debits and credits to the memorandum account are reasonable.
3. As utility management agreed to the deferred reimbursement the Aerojet settlement provides, it is reasonable for shareholders to bear the financial costs associated with delayed recovery of the approximately $8 million in capital costs.
4. If SCWC receives WAF monies at a rapid rate, it is reasonable to minimize ratepayers' amortization obligations by reducing ratepayer' monthly bills more quickly than once-in-three years.
5. It is reasonable to require SCWC to explain to ratepayers in the Arden-Cordova customer service area the terms of the groundwater contamination settlements and the reason for the surcharge.
6. Given the uncertain nature of the proposed Aerojet development and the size of the memorandum account balance, it is reasonable to require SCWC to provide the Director of the Water Division with an annual status report, as detailed in this decision.
7. The revised rates, and tariff rule revisions set forth in Appendices B and C, are reasonable.
8. This decision should be made effective immediately to enable SCWC to implement the surcharge without delay.
IT IS ORDERED that:
1. Carrying costs on $8 million in capital projects, and interest on those carrying costs, shall not be entered as a cost element in the Arden-Cordova Litigation Memorandum Account from January 1, 2004 forward.
2. Southern California Water Company (SCWC) is authorized to impose a surcharge in the Arden-Cordova customer service area to amortize the balance in the Arden-Cordova Litigation Memorandum Account adjusted consistent with Ordering Paragraph 1 to provide the results shown in Appendices A, B, and C.
3. In the first billing cycle that collects the new surcharge, SCWC shall include, as a bill insert, a letter to customers that explains the terms of the settlements reviewed herein and the reason for the surcharge. SCWC shall work with the Commission's Public Advisor to prepare the letter.
4. Until the Arden-Cordova Litigation Memorandum Account is fully amortized, SCWC shall submit by letter to the Director of the Water Division, within 45 days of the end of each calendar year, a status report for the Aerojet development associated with the WAF reimbursements of $8 million and $17.5 million. The status report shall summarize the current timeline for Aerojet development milestones; the number of equivalent dwelling units permitted in the prior year and the number anticipated to be permitted in the ensuing five years; and the amount of WAF monies received in the prior year and amount anticipated to be received in the ensuing five years.
5. In any year that receipt of Water Availability Fee (WAF) monies will permit a reduction in the Tariff Schedule AC-2 monthly bill of $ 0.50 or more, SCWC shall file an advice letter for adjustment of both Tariff Schedule AC-1 and AC-2, concurrent with any annual attrition-year or step-increase filing.
6. The memorandum account shall expire on January 1, 2006, consistent with Decision 04-08-052.
7. Application 03-10-057 is closed.
Dated _________________, at San Francisco, California.
