XII. Assignment of Proceeding

Geoffrey F. Brown is the Assigned Commissioner and Bruce DeBerry is the assigned ALJ in this proceeding.

Findings of Fact

1. D.03-07-005 granted SCWC a CPCN to construct an 8.4 MW generating facility to meet peak load demands.

2. The estimated generating facility capital-related costs are $13 million, or a $2,255,500 revenue requirement.

3. The estimated generating facility annual O&M revenue requirement is $444,000.

4. The BVES recorded rate of return has declined significantly during the past few years.

5. The revenue requirement associated with the generating facility is estimated to reduce the 2005 BVES rate of return from 3.90% to 1.47%, without any offsetting revenue increase.

6. It is reasonable to record generating facility fuel costs in the PPAC Balancing Account.

7. Authorization of the rate increase requested by SCWC, is estimated to increase the BVES rate of return from 3.90% to 5.46%.

8. Ratepayers will receive a refund of capital-related costs for the generation facility, if the recorded generation facility amounts are less than the revenue requirement cap of $2,255,500.

9. Ratepayers will receive a refund of O&M costs for the generation facility, if the annual recorded generation facility O&M costs are less than the annual O&M generation facility cap of $444,000.

10. SCWC's last authorized rate of return is 8.75%.

11. Commencing a reasonableness review of the generating facility at this time is an inefficient use of staff resources.

12. Establishing one-way memorandum accounts to record capital-related and annual O&M costs, including caps on these accounts, protects ratepayers against unreasonable future increases in capital or annual O&M costs.

13. Ratepayers will be protected against unreasonable recorded costs through a reasonableness review in SCWC's next general rate case for its Bear Valley Electric Service division.

14. SCWC installed 242 real-time meters representing all customer classes to measure customer demand during the peak periods in December 2003.

15. The BVES system peak occurred on December 28, 2003, at 7:00 pm when the demand increased from a system load average of 20-27 MW to 39 MW.

16. All Large Power BVES customers are interruptible customers.

17. Large Power customers benefit from operation of the generating facility as these customers will have fewer service interruptions.

18. SCWC's allocation and rate design applies four principles including allocation of the revenue requirement based on customer demand during peak hours and energy use, mitigation of the rate increase to low-income customers, design of rates to encourage conservation and application of rates in a straight-forward manner.

19. SCWC assigned a greater portion of the residential customer revenue requirement to the second and third rate tiers.

20. ORA reviewed SCWC's rate request, and supports SCWC's level of revenue requirement.

21. ORA supports establishing the two one-way memorandum accounts proposed by SCWC for generating facility costs, and the amounts proposed by SCWC for these accounts.

22. Allocating capital-related costs for the generating facility to customer classes based on customer demand during peak hours is reasonable.

23. Allocating O&M costs on an energy use basis is reasonable.

Conclusions of Law

1. Based on the record before us, we conclude that SCWC has met the requirements of Pub. Util. Code § 454, and that a rate increase is justified.

2. SCWC should be authorized to reflect in rates the revenue requirement changes found reasonable in this order.

3. It is reasonable to include fuel costs for SCWC's generating facility in the PPAC Balancing Account.

4. The adopted rate design results in rates that are just and reasonable.

5. It is reasonable to review capital-related and O&M costs in SCWC's next general rate proceeding.

6. There are no factual issues in dispute, and therefore no need for a hearing.

ORDER

IT IS ORDERED that:

1. Southern California Water Company (SCWC) is authorized to file tariff schedules for electric rates for its Bear Valley Electric Service division (BVES) as discussed in this order.

2. SCWC is authorized to establish a one-way memorandum account to record the capital-related revenue requirement of its BVES 8.4 Megawatt generating facility (generating facility) adopted in Decision 03-07-005. The capital-related revenue requirement shall be a maximum amount of $2,255,500. Amounts exceeding this maximum shall not be charged to ratepayers. Recorded amounts in this account less than the adopted maximum of $2,255,500, shall be refunded to ratepayers.

3. SCWC is authorized to establish a one-way memorandum account to record the annual Operational and Maintenance (O&M) costs of its BVES generating facility. The annual O&M costs shall be a maximum of $444,000. Amounts exceeding this maximum shall not be charged to ratepayers. Recorded amounts in this account less than the adopted annual maximum, of $444,000, shall be refunded to ratepayers.

4. A reasonableness review of all generating facility capital-related and annual O&M costs shall be conducted in SCWC's next general rate for its Bear Valley Electric Service division. Amounts not found reasonable as a result of this review shall be returned to ratepayers.

5. SCWC is authorized to record the fuel costs for its generating facility in the Purchased Power Adjustment Clause (PPAC) Balancing Account.

6. Within 14 days of today's date, SCWC shall file an advice letter with revised tariffs to comply with this Order. The revised tariffs shall establish two one-way memorandum accounts to record the capital-related revenue requirement, and the operation and maintenance costs incurred to construct and operate the generation facility. The tariffs shall specify that the amounts to be recorded in the capital-related memorandum account will be capped at a maximum of $2,255,500; and the amounts to be recorded in the O&M memorandum account shall be an annual maximum of $444,000. SCWC shall also revise its tariffs to specify that the PPAC will record fuel costs associated with the generating facility. The revised tariffs shall be effective on filing subject to Energy Division determining that they are in compliance with this Order.

7. This proceeding is closed.

This order is effective today

Dated April 7, 2005, at San Francisco, California.

ATTACHMENT A

Estimated Capital-Related Annual Revenue Requirement17

Depreciation (weighted average plant at 4.30% per year) $ 559,349

Return on Ratebase (8.75% adopted in D.04-08-053) $1,113,022

Franchise Fees (1.49%) and Uncollectible Expense (0,288%) $ 30,223

Ad Valorem Taxes (1.00%) $ 127,203

State Income Taxes (8.84%) $ 92,358

Federal Income Taxes (35%) $ 333,345

Estimated Operational and Maintenance (O&M) Costs18

O&M Component Purpose Annual One-Time

Contracted Work

Corner Stone Operation $219,000 $12,000

CEMTEK Testing $ 68,000 $ 5,500

Praxair Air Quality Testing $ 15,572

Complete Energy Dispatching $ 30,000

Consultants Engineering $ 20,000 $20,000

So Coast Air Quality
Management District Fees and Permits $ 16,750

Material

Testing $10,000

Spare parts $ 10,000

Gas Storage $ 35,000

Franchise Fees (1.049%)
and Uncollectible Expense (0.288%) = $ 5,903

(END OF ATTACHMENT A)

17 See Exhibit 1, pp. 9-10. 18 See Exhibit 1, pp. 11-12. 19 One- Time expenses are amortized over two years.

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