III. SCWC's Application1
On October 1, 2004, SCWC filed Application (A) 04-10-003 requesting an increase in rates to recover the capital-related2 revenue requirement and O&M expenses for the generating facility.3 SCWC proposes that fuel costs for the generating facility be included in the PPAC Balancing Account, which also records BVES purchase power costs. SCWC estimates that the total-capital related cost is approximately $13.0 million, equating to a $2.255 million revenue requirement. In addition, SCWC requests an annual O&M revenue requirement of approximately $444,000.4 SCWC proposes that two one-way memorandum accounts be established to track capital-related costs, and O&M costs. Each one-way memorandum account will have a "cap," so that the one-way memorandum accounts will only track costs up to the limit of the cap. If actual recorded costs in either memorandum account are less than the costs authorized by the Commission, then the difference is refunded to ratepayers. If the actual recorded costs in either memorandum account exceed the amount authorized by the Commission, then SCWC absorbs the difference and there is no additional cost to ratepayers. SCWC also proposes that the amounts in the two one-way memorandum accounts will be reviewed for reasonableness in SCWC's next general rate case. At that time, any differences between the cap and recorded amounts found reasonable in the memorandum accounts will be returned to ratepayers.
SCWC states that as a partial result of the energy crisis, the recorded rate of return for BVES has significantly declined in the past two years.5 SCWC attributes the decline to increased costs for outside services associated with the energy crisis, and changes in rate design that resulted in a larger proportion of revenues being credited to the PPAC Balancing Account and less revenues credited to the recovery of base margin. SCWC notes that the PPAC was substantially under-collected by an approximately $28.6 million in mid-2002. As adopted in D.02-07-041, the PPAC under-collection will be amortized over a 10-year period.6 SCWC estimates that the revenue requirement associated with the generating plant would reduce the 2005 rate of return from 3.90% to 1.47%, without any offsetting revenue increase. However, SCWC estimates that if the Commission authorizes the rate increase requested in this Application, the 2005 rate of return will increase from 3.90% to 5.46%.
1 For purposes of this opinion, documents submitted with SCWC's Application are identified as the following exhibits: Exhibit 1, Testimony of Keith Switzer in Support of Cost Recovery for Bear Valley Electric Generator Facility; Exhibit 2, Exhibits to the Testimony of Keith Switzer; Exhibit 3, SCWC Workpapers Supporting Application for Recovery of Costs Related to Bear Valley Electric Generator Facility (Volumes 1 and 2). 2 Capital related costs include depreciation, taxes and return. 3 Operational costs exclude fuel costs. 4 Calculation of the capital-related and annual O&M revenue requirements are shown on Attachment A. 5 SCWC states that its BVES recorded rate of return was 10.50% in 1999; 12.69% in 2000: 6.04% in 2001; -5.09% in 2002; and 1.97% in 2003. SCWC's current Commission authorized rate of return is 8.75%. (D.04-08-053.) An estimated increase in 2005 electric sales would increase the rate of return to 3.90%, assuming no changes in current expenses. 6 In mid-2004, the PPAC was under-collected by approximately $21.7 million.
