II. Background
The Commission regulates water service provided by Cal-Am in its seven California districts pursuant to Article XII of the California Constitution and the Public Utilities Code. For Cal-Am and other Class A water utilities, Section 455.2, as implemented in D.04-06-018, provides for a GRC proceeding every three years.3
There are approximately 27,200 customers in the Los Angeles District. The district has three physically separated subsystems, the largest being San Marino. The other two are the neighboring Duarte subsystem and the geographically farther Baldwin Hills subsystem.4 The district is served by wells and irrigation water utilizing Cal-Am's groundwater rights and by purchases from municipal wholesalers. The San Marino and Duarte subsystems use primarily groundwater while the Baldwin Hills subsystem uses approximately 50% purchased water from the Metropolitan Water District and the West Basin Municipal Water District.
On January 9, 2006, Cal-Am filed its initial application. A protest to the application was timely filed by DRA on January 30, and a prehearing conference (PHC) held on February 16. Petitions to intervene were filed on March 6 by the City of San Marino, March 13 by the City of Duarte, and March 28 by the Utility Workers Union of America, AFL-CIO. All petitions were granted.
The Commission held three public participation hearings (PPHs), one each in San Marino, Duarte, and Inglewood on April 5 and 6, 2006. At the PPHs, Cal-Am stated that it intended to withdraw its rate design proposal in response to San Marino and Duarte's opposition to its rate consolidation proposal. It would replace its proposal with a new conservation rate design not yet developed. In subsequent filings addressing this issue, Cal-Am requested to bifurcate the proceeding to consider rate design on a later schedule so that a final decision on the revenue requirement would not be delayed. Cal-Am also responded to Commission concerns that it had not properly noticed its application because the customer notice did not include the total revenue requirement as a dollar and percentage amount, as required under Section 454(a) and Rule 24.5
On April 25, 2006, the assigned Commissioner and ALJ issued a ruling finding that (1) Cal-Am's customer notice did not meet the statutory requirements of Section 454(a) and Rule 24, (2) Cal-Am must re-notice its customers before the Commission can proceed to hold any evidentiary hearings on its application, and (3) a PHC should be held on May 12 to discuss a revised procedural schedule. Further, the ruling allowed Cal-Am to file its revised rate design proposal on May 3 and DRA to serve its revenue requirement testimony on May 5, 2006.
On May 9, 2006, the City of Inglewood (Inglewood) contacted the Commission's Public Advisor's Office in Los Angeles to inquire why Inglewood was not on the service list for Cal-Am's application as required under Rule 24. The ALJ contacted Cal-Am, which stated it had failed to originally serve Inglewood in January. Since the April 6 PPH, Cal-Am had been informally providing documents to employees of Inglewood. At the ALJ's request, DRA also served its testimony on Inglewood, and on May 11 the city attorney sent a facsimile stating Inglewood intended to fully participate in the proceeding and would formally intervene at the May 12 PHC.
At the May 12 PHC, all parties agreed to bifurcate the proceeding to consider revenue requirement issues on the original hearing schedule and to consider on a later schedule rate design as well as Special Requests 2, 5, and 6. Cal-Am prepared a revised customer notice and coordinated the notice with the Public Advisor and DRA before mailing to its customers. Pursuant to Rule 12.1(b), Cal-Am stated it would also notice an all-party settlement meeting on May 23, 2006.6
On May 22, 2006, the assigned Commissioner issued a scoping memo setting the procedural schedule. On May 31 and June 1 additional PPHs were held. Evidentiary hearings on revenue requirement issues were conducted on June 13 - 15 and June 28-29, 2006. At the later hearings, Cal-Am and DRA were cross-examined on their June 23, 2006 proposed settlement. Duarte protested the settlement on July 6, 2006.
On July 31, 2006, opening briefs were filed by Cal-Am and DRA. On August 10, Cal-Am filed a motion to include the referenced attachments to Mr. Reiker's testimony; no party opposed this motion and the corrected exhibit is entered into evidence. Reply briefs were filed by Cal-Am, DRA, Duarte, and San Marino on August 14, 2006.
Cal-Am made two corrections to the settlement, both resulting in significant revenue increases. Cal-Am's first motion was filed on August 16, 2006. In the motion, Cal-Am stated it discovered that the calculations supporting the 2008 and 2009 settlement tables and comparison exhibits under the updated July 2006 purchased water scenarios were incorrectly calculated. Specifically, in calculating the 2008 operation and maintenance (O&M) expenses, rather than subtracting the updated 2007 purchased water costs, the original 2007 purchased water costs were subtracted. This error had a cascading effect on the calculation of the 2009 O&M Expenses. The corrections result in an increase in overall O&M expenses of $1,096,000 for 2008 and $1,113,900 in 2009, at proposed rates.
On February 15, 2007, Cal-Am filed a motion requesting the assigned ALJ reopen the record to accept an amended settlement agreement. Cal-Am attached amended settlement tables correcting certain errors, also described in a narrative paragraph, and included data from Cal-Am's most recent financing.
On February 22, 2007, the assigned ALJ directed Cal-Am to supplement its February 15 motion with additional information needed by the Commission in order to understand the impact of the proposed settlement changes. Cal-Am supplemented its motion on February 27.
Cal-Am shows its correction results in an increase in purchased water costs over the three-year GRC of $1,683,741 to San Marino, a decrease of $1,106,855 to Duarte, and a decrease of $29,472 to Baldwin Hills. The net change overall is an increase in O&M expenses of $547,414.
DRA filed a response on March 7. The issues raised are discussed as part of our review of the settlement, under O&M expenses.
Cal-Am's motion to reopen the record changes the submittal date of the evidentiary record in Phase 1 to March 7, 2007.
3 A Class A utility is defined as an investor-owned water utility with over 10,000 service connections.
4 The San Marino service area lies ten miles northeast of downtown Los Angeles in the San Gabriel Valley, and the Baldwin Hills service area is centrally located in an unincorporated area of Los Angeles County southwest of downtown Los Angeles and just a few miles east of the Los Angeles International Airport.
5 Rule 24 has been recodified effective September 2006 as Rule 3.2(d).
6 The City of Bradbury (Bradbury) also contacted parties and participated in the settlement conference. On December 5, 2006, Bradbury filed a motion to intervene, which we grant here.
