Introduction

SCWC seeks to recoup, through rates, a $3.1 million investment undertaken in 1989 for plant construction. In 1989, the Commission authorized SCWC to construct this treatment plant with a capacity of 1050 gpm (gallons per minute) at a cost of $1,275,000 (Re Southern California Water Company (1989) 33 CPUC 2d 454, Decision (D.) 89-11-017). Upon completion, SCWC sought to include the plant in rate base at a cost of $3,100,000. After hearings, the Commission determined that because the plant had excess capacity of approximately 500 gpm, or 1/3 of its total capacity, ratepayers should be responsible for only $1.5 million of the plant cost and that "SCWC should not be authorized to include the balance of $1,600,000 in rate base until such time as its Clearlake customers require additional plant capacity." [Re:Southern California Water Company (1993) 49 CPUC 2d 511, 534, 537 (D. 93-06-035). ].

SCWC now claims that the treatment plant is fully utilized and renews its request that the undepreciated balance of $1.6 million be included in rate base. The utility explains that excess capacity no longer exists because implementation of the Department of Health Services (DHS) Cryptosporidium Action Plan (CAP) limits plant production to 720 gpm (about 43 gpm more than 677 gpm, the average of the recorded maximum day demand each year from 1992-1999, and less than one-half of the plant capacity).

When the treatment plant was constructed, Cryptosporidium was not an issue, and SCWC's earlier requests for rate recovery were not based on the threat of that pathogen¹. But for an expensive mistake in judgment, the excess capacity of the Sonoma Treatment Plant would not exist. A utility's use of a post-hoc rationale to justify recovery of a ten year old, unauthorized investment warrants our special scrutiny. Old management errors should not be dusted off years later and treated like new to justify unforeseen and questionable advantage.

Utilities have the burden of proving the reasonableness of the rates they request. In D.93-06-035, we conditioned rate recovery for the $1.6 million of plant cost on a showing of increased customer growth or demand. Today, the demand for water is lower, the number of Clearlake customers fewer and the water rates are significantly higher than in 1993 when the Commission decided that it would be unjust and unreasonable to allow rate recovery on more than $1.5 million of the plant cost. SCWC has not satisfied the requirement established in D.93-06-035.

Should Clearlake customers be exposed to the cost of a $1.6 million management error simply because it fortuitously may have some value, unrelated to customer growth or demand, years afterwards? We think not. Before we could seriously consider rate recovery on this unauthorized investment, SCWC would have to show more than the achievement of optimum water quality. At a minimum, SCWC would have to demonstrate by clear and convincing evidence that its health solution is the only one available - or - where alternate technologies could achieve the goal, that the utility's solution is the most economical one. SCWC has not done this.

While we do not conclusively exclude the possibility that a utility might show that we could justly and reasonably authorize ratemaking treatment for the aged product of an errant management decision, as explained more fully below, that is not the case here.