III. Contaminated Wells and Their Effect on Rates
In 1989, the Department of Health Services determined that a number of Bakman's water wells were contaminated and required Bakman to remedy them. Bakman applied for and received a SDWBA loan of $615,300 to cover associated repair and remediation costs. In order to pay off the SDWBA loan, the Commission authorized Bakman to collect a monthly surcharge from its customers beginning March 31, 1991. (See Decision (D.) 91-03-065.) The monthly surcharge includes both the principal and interest on the principal at 3.41% for 15 years. As of the end of December 2002, the balance remaining on the loan was $218,435.
Soon after obtaining the SDWBA loan, Bakman filed two lawsuits against the polluters who caused the water contamination. First, Bakman filed a lawsuit against E & J Gallo (Gallo) in September 1992. In February 1993, the case settled and Bakman received a gross settlement award of $300,000 and incurred $68,212 in legal fees. The Commission addressed the ratemaking treatment of that settlement award in Resolution W-3785 (June 23, 1993), where the Commission allowed Bakman a $75,000 credit for legal fees and credited the remaining Gallo lawsuit proceeds of $225,000 to CIAC, thereby reducing the ratebase by that amount.
On May 12, 1993, after the Gallo lawsuit settled, Bakman filed a lawsuit against Shell Oil Company (Shell Oil) and others, resulting in a net settlement of $757,400.1 This case was filed by Bakman's attorneys on a contingent fee basis, with Bakman paying no up-front legal expenses, but paying a set percentage of any recovery.
On June 20, 2000, Bakman initiated a test year 2000 GRC by submittal of the required Water Division workbook. In accordance with Water Advisory Branch practices, Bakman did not submit an advice letter until it filed compliance tariffs after the Commission approved a rate increase. On April 19, 2001, the Commission issued Resolution W-4262, which authorized an interim rate increase covering uncontested rate case revenue requirements. On January 9, 2002, the Commission issued Resolution W-4310, which authorized a final rate increase. The resolution reduced Bakman's rate base to zero to reflect a $ 907,779 credit to CIAC. The CIAC amount is about equal to the sum of the Gallo lawsuit proceeds net revenues and most of the Shell Oil lawsuit proceeds net revenues.2
1 On April 25, 1995, Bakman received $74,939 from AMVAC. On June 7, 1995, Bakman received $312 from Velsicol. On June 8, 1995, Bakman received $682,186 from Shell Oil. These amounts are net of contingency fees. 2 Water Branch computed the rate base as negative $10,950, but allowed zero for return rather than a negative return based on a negative rate base.
