Findings of Fact
1. This decision resolves the revenue requirement phase of Cal-Am's Los Angeles GRC application.
2. On June 23, 2006, Cal-Am and DRA filed a partial settlement of the revenue requirement issues. On August 16, 2006, corrected tables to the settlement were filed that result in an increase in overall O&M expenses of $1,096,000 for 2008 and $1,113,900 for 2009, at proposed rates.
3. On February 15, 2007, Cal-Am filed a motion requesting the assigned ALJ reopen the record to accept an amended settlement agreement that corrects certain errors and includes data from Cal-Am's most recent financing. Cal-Am was directed by ALJ ruling to supplement this motion with further information by ALJ ruling on February 23, 2007.
4. Since its last GRC, the Los Angeles District has not received any Notices of Violations or any other compliance actions from DHS.
5. The record reflects the Baldwin Hills subsystem has exceeded the Lead Action Level since 2001. While Cal-Am appears to be taking appropriate steps to bring its subsystem into compliance with drinking water standards for lead, the Commission needs additional verification that the Baldwin Hills subsystem does not now exceed the Action level for Lead or, if it does, that Cal-Am is in compliance with all testing requirements and treatment techniques required by California and federal law for community water systems. If Cal-Am is not employing any treatment techniques recommended by DHS and EPA, it should explain why.
6. Cal-Am's actual consolidated capital structure of 62.6% debt/37.4% equity, rather than the separate imputed capital structure contained in the partial settlement, is a more accurate description of capital structure.
7. We find it reasonable to adopt the updated July 2006 water costs.
8. The O&M section of the revised settlement contains a substantial correction to the supply mix. We find this section reasonable but direct Cal-Am in future proceedings to address the additional procedures it has adopted to better review the accuracy of its filing.
9. The A&G Expense section of the settlement is reasonable.
10. The Utility Plant in Service and Depreciation sections of the settlement are reasonable.
11. It would be helpful to have more information in the record on the most recent lead/lag studies relied on by Cal-Am and DRA in reaching their settlement.
12. The low-income program proposed in the settlement is reasonable.
13. In future proceedings, Cal-Am should address in each GRC application the additional procedures it has adopted to better review the accuracy of its filings.
14. Weighing the settlement as an integrated agreement, we find it is reasonable in light of the whole record and in the public interest.
15. An ROE of 10.0% in this phase is reasonable based on the record and is fair because the return is commensurate with returns on investments in comparable companies and is sufficient to (a) assure confidence in the financial integrity of Cal-Am, (b) maintain its credit, and (c) attract necessary capital.
16. A leverage adjustment for Cal-Am's ROE is not warranted.
17. The adoption of a WRAM and MCBA is premature. The adoption of an adjustment to ROE due to a WRAM is also premature. These issues are better heard in an industry-wide proceeding.
18. We encourage Cal-Am and DRA to consider modifying their pending Phase 2 settlement to include a mechanism that provides:
a. A balancing account in which to record the undercollection or overcollection of authorized fixed costs due to differences caused by the adoption of a Phase 2 conservation rate design;
b. A clear methodology for tabulating and verifying changes in water volume sales due to conservation measures.
c. A recovery mechanism for fixed cost under-recovery from customer usage reductions direction attributable to new conservation programs implemented by Cal-Am in the test period.
19. While timely infrastructure replacement is an important component of responsible utility management and DSICs are useful in some circumstances to fund infrastructure replacement, Cal-Am has not established a need for its proposed ISRS.
20. There are substantial risks to ratepayers in adopting the proposed ISRS, and the record provides strong evidence of this for the Los Angeles District.
21. We should not adopt Cal-Am's proposed ISRS.
22. There are benefits to adoption of a DSIC and we should consider adoption of a pilot program provided we adopt effective regulatory oversight mechanisms.
23. Cal-Am should revise its 2008 CPS to specifically address an infrastructure replacement strategy, in the manner proposed by DRA.
24. This proceeding should remain open for the next phase.
