4. Discussion of the Settlement

The settlement resolves all of the issues between two of the parties, Golden State and DRA. All remaining issues, including those posed by protestant Trimble, are resolved in this decision.

The Settlement Agreement calls for a pilot program (Pilot Program) for six of the seven ratemaking areas in Region I.11 The Pilot Program is composed of a conservation rate design and previously authorized WRAM and MCBA revenue decoupling mechanisms. It will become effective 90 days after adoption of the Settlement Agreement by the Commission. Experience with the Pilot Program will be reviewed in the next company-wide GRC filing in July 2011.

Customers in these four areas are classified as residential and non-residential customers. The residential customers will have a reduced service charge and an increasing block rate quantity rate with three tiers. (See Table 1 on page 7.) The non-residential customers will have a reduced service charge and a single quantity rate. For both classes of customers the reduced service charge will mean that a higher proportion of Golden State's fixed costs will be recovered from quantity charges.12

The residential three-tier increasing block rate structure reflects patterns of seasonality and consumption based on a five-year averaging of meter readings, using the 2003-2007 period. Individual consumption patterns of metered usage between ratemaking areas will result in different tier thresholds in each ratemaking area. Tier 1 would include usage from zero units to the average winter usage. Tier 2 would include from the top of Tier 1 to the midpoint between the annual average usage and the summer average usage, which is the highest usage period. Tier 3 captures consumption above Tier 2. The difference in rates between adjacent tiers is designed to approximate 15%.

The Settlement Agreement states that there is insufficient customer and consumer data in those four ratemaking areas to consider an increasing block rate structure for non-residential customers. The settling parties believe that a reclassification of customers would be required, demanding customer and consumption data not now available, in order for such a structure to be feasible.

TABLE 113

PROPOSED RESIDENTIAL RATES FOR

BAY POINT, LOS OSOS, SANTA MARIA & SIMI VALLEY

RATEMAKING

AREA

CURRENT

SERVICE

(METER)

CHARGE

PROPOSED

SERVICE

(METER)

CHARGE

CURRENT

QUANTITY

RATE

($/ccf)

PROPOSED QUANTITY RATE

AVERAGE

ANNUAL

CONSUMPTION

CONSUMPTION

AT WHICH

NEW BILL

WOULD

EXCEED

CURRENT BILL

TIER I

TIER II

TIER III

RATE ($/ccf)

RATE ($/ccf)

RATE ($/ccf)

CONSUMPTION (ccf)

CONSUMPTION (ccf)

CONSUMPTION (ccf)

BAY POINT

$27.60

$24.30

3.275

3.3460

3.8480

4.4250

12 ccf

~ 14 ccf

0 - 8 ccf

9 - 14 ccf

15 ccf and up

LOS OSOS

$28.40

$19.30

2.731

3.185

3.663

4.212

12 ccf

~ 15 ccf

0 - 8 ccf

9 - 14 ccf

15 ccf and up

SANTA MARIA

$19.65

$13.95

1.267

1.422

1.635

1.881

23 ccf

~ 25 ccf

0 - 15 ccf

16 - 27 ccf

28 ccf and up

SIMI VALLEY

$11.60

$11.00

2.3030

2.1910

2.5197

2.8980

18 ccf

~ 25 ccf

0 - 13 ccf

14 - 20 ccf

21 ccf and up

Ojai already has a three-tiered conservation rate design. The settlement reduces the service charge and increases the quantity rates in each tier. (See
Table 2.)

TABLE 2

PROPOSED RESIDENTIAL RATES FOR OJAI

RATEMAKING

AREA

CURRENT

SERVICE

(METER)

CHARGE

    PROPOSED

    SERVICE

    (METER)

    CHARGE

CURRENT

QUANTITY RATES

PROPOSED

QUANTITY RATES

AVERAGE

ANNUAL

CONSUMPTION

CONSUMPTION

AT WHICH NEW BILL WOULD EXCEED CURRENT BILL

TIER I

TIER II

TIER III

TIER I

TIER II

    TIER III

RATE ($/ccf)

RATE ($/ccf)

CONSUMPTION (ccf)

CONSUMPTION (ccf)

OJAI

$29.20

$24.25

2.347

    2.527

2.952

    2.638

2.841

3.319

30 ccf

~ 20 ccf

0 - 5 ccf

    6 - 20 ccf

21 ccf

and up

    0 - 5 ccf

6 - 20 ccf

21 ccf and up

Reduction of the service charge and an increase in the current single quantity rate are proposed on an interim basis for Arden Cordova. Consistent with the Settlement Agreement, GSWC will submit the proposed interim single quantity conservation rate by advice letter, within 10 days of the issuance of a final decision in the instant proceeding. Whether Arden Cordova should have multi-tier or increasing block conservation rates will be considered in the next company-wide GRC in July 2011.

Clearlake, a ratemaking area with few customers and low average consumption, is excluded from the proposed settlement.

Water sales and revenue collection will be decoupled through a water revenue adjustment mechanism and a modified cost adjustment account in each of the six ratemaking areas covered by the Settlement Agreement. With minor exclusions, the difference between the total quantity rate revenues authorized by the Commission and the total quantity rate revenues actually recovered via the quantity charge will be tracked by the water revenue adjustment mechanism. The difference between adopted and actual costs for purchased water, purchased power and pump tax is to be tracked by the modified cost balancing account. That account will replace Golden State's current supply cost balancing account which does not track changes tied to consumption.

Golden State must submit a written report on the revenue over- or under-collected relative to actual water sales in each of the ratemaking areas during the calendar year by March 31 of the following year. The report must show the difference between actual costs and adopted costs in the modified cost balance account, a difference that accrues interest at the 90-day commercial rate. If the over - or under-collection in the combined water revenue adjustment and modified cost balancing accounts for any ratemaking area exceeds 2.5% of that area's total authorized revenue requirement14 for the preceding calendar year, an advice letter is to be filed within 30 days by Golden State that amortizes the balance in both accounts. If the percentage is 2.5 or less, the balancing accounts will be amortized in the next GRC.

In the Settlement Agreement, Golden State "stipulates that it will exercise due diligence in ensuring the least-cost water mix of its water sources."15 Significant changes16 in the water mix causing changes in variable costs are to be tracked in the modified cost balancing accounts.

Protestant Trimble contends that the Settlement Agreement disregards directives of D.08-08-030 and the settlement adopted therein by

· not having residential and non-residential customers share the same rate design and tariff schedule;17

· inconsistently proposing three-tier increasing block rates for Region I when two-tier increasing block rates were settled on for Regions I and II;18

· subjecting customers to being over-billed when meter-reading errors cause a crossing of tier boundaries;19 and

Golden State and DRA replied (Joint Reply)21 to Trimble's Comments. We address the Comments and the Joint Reply on the merits in the discussion that follows.

The state-wide public interest in water conservation is not in

question.22 At issue is whether this settlement is "reasonable in light of the whole record, consistent with law, and in the public interest." (Rule 12.1(d).) The Commission concludes that it is, for the following reasons.

As to the conservation rate design for Bay Point, Los Osos, Santa Maria and Simi Valley, reduction of the service charge furthers the goal of increasing the portion of fixed cost recovery that is assumed by the quantity rates paid by the customer. This approach generally has been followed in the Class A water company conservation rate design proceedings, consistent with the Commission's commitment to Best Management Practice 11 of the California Urban Water Conservation Council.

The proposed three-tier structure for residential customers in these four ratemaking areas is reasonable for the Pilot Program. The fact that it differs from the two-tier structure adopted for Regions II and III in D.08-08-030 does not make it unreasonable. Changes and refinements over time between pilot or interim programs are a reasonable aspect of the overall conservation rate initiative launched by the Commission. Varying conditions between ratemaking areas can justify different treatment. Use of three tiers in this instance is for the purpose of shifting higher use customers in Tier 3 toward reduced usage and providing monetary incentive to stay within the lower rates of Tier 2.23 The 15% differential in rates between the tiers is reasonable, building as it does upon the tier differential of 15% occurring in the Phase 1B settlement adopted in
D.08-08-030. The 2.5% threshold for triggering the amortization of combined balances tracked in the water revenue adjustment and modified cost balancing accounts likewise matches the threshold adopted in the Phase 1B settlement.

Trimble notes that the D.08-08-030 settlement agreement (2007) contained the statement that Region I "residential and non-residential customers will share the same conservation rate design and tariff schedule."24 What is unclear from that single statement, however, is whether it applied to the "interim" conservation rate design proposed to be in effect until a decision issued in the then pending General Rate Case for Region I or applied to the "revised" conservation rate design required in the instant proceeding, or possibly both. We are persuaded by the context in which the statement occurs and by other portions of the 2007 settlement agreement25 that the statement applied only to the "interim" rate proposal which was not adopted in D.08-08-030.

Trimble argues that the tiered increasing block rate structure creates a potential for meter-reading errors26 which could cause a customer to be either over-billed by being pushed into a higher tier or under-billed, harming other customers.27 Trimble proposes replacing the monthly tier level with an annualized one that would allegedly reduce the opportunity for error and facilitate a once-a-year billing adjustment. We find no present basis for accepting Trimble's statement of the problem or of a solution. The potential for the meter-reading errors and the results Trimble sees is speculative at this juncture both as to frequency and scale. We will require Golden State to keep a record of meter-reading errors pertaining to tiered rates so that there will be data for the consideration of this issue in the company-wide General Rate Case filing in
July 2011.

The types of meter reading error data GSWC is to collect are: (1) manual reading errors brought to its attention by a customer; (2) substitute estimate errors; and (3) early and/or late meter reading errors. For purposes of determining and tracking whether there is an error due to an early/late meter reading, resulting in an unjustified crossing of tiers or retention within a tier,
a monthly bill that contains anywhere from 27 to 33 billing days is not considered early or late.

While the Application in this proceeding (A.08-09-010 at 21) stated that WRAM adjustments to recorded revenues would include deductions for franchise fees and uncollectibles, no such provision is in the Settlement Agreement nor is one sought,28 removing grounds for one of Trimble's concerns.

As to the non-residential customers in Bay Point, Los Osos, Santa Maria and Simi Valley, reducing the service charge, with corresponding increases in the quantity rate, and not applying a tiered increasing block structure is reasonable and consistent with the outcome reached for Regions II and III in D.08-08-030. The proportional shift in revenue recovery from service charge to quantity rate is in keeping with the Commission's recent ratemaking actions concerning
Class A water utilities.

The reduction of the service charge and the increasing of the current
three-tiered quantity rate for Ojai is reasonable for the same reasons noted above. On an interim basis, reducing the service charge and increasing the rate for all consumption is reasonable for Arden Cordova pending the filing of a conservation rate by advice letter shortly after the issuance of a final decision herein.

11 D.08-08-030 authorized conservation rates for Regions II and III.

12 The Commission is seeking generally to move Class A water utilities toward the
30/70 service/quantity charge ratio required by Best Management Practice 11 of the California Urban Water Conservation Council. See e.g., D.08-08-030 at 16, pertaining to Golden State's Regions II and III.

13 Explanation of symbols: "ccf" means "100 cubic feet," and "~" means "is approximately equal to."

14 The Settlement Agreement at 11 uses the phrase, "recorded revenue requirement," in this connection, but we are assuming that "authorized revenue requirement" was intended.

15 Settlement Agreement at 10.

16 We interpret the definition of "significant changes" to mean when the annual volume of purchased water in Region I deviates by more than 10% from the volume of purchased water adopted in the most recently adopted test year for Region I. Settlement Agreement at 10-11.

17 Comments of Gerald Trimble on the Settlement Agreement Between Golden State Water Company and the Division of Ratepayer Advocates (Comments) at 3-8.

18 Comments at 8-10.

19 Comments at 10-13 and at Attachment.

20 Comments at 12-13.

21 Joint Reply of Golden State Water Company and the Division of Ratepayer Advocates to Comments of Gerald Trimble on the Settlement Agreement between Golden State Water Company and the Division of Ratepayer Advocates.

22 See the Commission's Water Action Plan (December 15, 2005) at 7-11; also, Governor Schwarzenegger's Executive Order S-06-08 (June 4, 2008) "strongly encouraged" water agencies "to take aggressive, immediate action to reduce water consumption locally and regionally for the remainder of 2008 and prepare for potential worsening water conditions in 2009."

23 See Proposed Testimony of Nancy Tran in Support of Golden State Water Company's Application for Authority to Implement Changes in Ratesetting Mechanisms and Reallocation of Rates for Its Region I Service Area (September 2008) at 14-15.

24 Settlement Agreement between the Division of Ratepayer Advocates and Golden State Water Company on WRAM & Conservation Rate Design Issues, October 19, 2007, at 4.

25 See Joint Reply at 4-7.

26 Protest of Gerald Trimble to the Application of Golden State Water Company at 7. Trimble cites erroneous manual reading, substitute estimates, and early and late meter reading as potential sources of problems.

27 Trimble argues that the WRAM/MCBA accounts cannot correct the problem he foresees. He states, for example, that the loss imposed on some customers through over-billing will be redistributed by the WRAM to provide a subsidy for all of the customers. Comments at 11.

28 Joint Reply at 16: "The parties do not seek approval of an adjustment to recorded revenue for franchise fees and uncollectibles as part of the Motion and approval of the Settlement Agreement."

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