Conclusions of Law
1. We grant the City of Bradbury's December 5, 2006 petition to intervene.
2. The issue raised by Duarte in its protest to the partial settlement is properly considered in the rate design phase, Phase 2, of this proceeding rather than here.
3. We should reopen the record to accept the February 15, 2007 amendment to the partial settlement.
4. The partial settlement, as amended on February 15, 2007, is reasonable in light of the whole record, consistent with law, and in the public interest.
5. We should adopt the amended partial settlement.
6. The settlement should not be construed as precedent or policy of any kind in this or future proceedings.
7. The objective of a conservation loss adjustment mechanism is to ensure Cal-Am does not undercollect its authorized fixed costs due to conservation rate design and new conservation programs and to ensure ratepayers are protected from any over-recovery of authorized costs that are due to the conservation rate design.
8. We should adopt as a pilot program for this GRC period a DSIC as follows:
a. The surcharge should be based on the infrastructure projects reviewed and approved in this proceeding, identified in the Cal-Am/DRA settlement, and have a total cap of 7% of 2007 annual adopted revenues for the GRC period. The dollar cap for the entire GRC period is $1,323,588.
b. Cal-Am should file by quarterly advice letter, under the Tier 3 procedures specified in D.07-01-024, for its DSIC surcharge. It should explicitly and clearly state in each advice letter filing, and provide supporting documentation, for (1) any project that was not approved in this GRC proceeding, and (2) any project that is included at an amount over the level authorized in this GRC proceeding.
c. To allow for interim recovery, each advice letter should be effective immediately, subject to refund if necessary when the Commission issues its resolution. This "interim" surcharge should have a quarterly cap of 4% and any refunds should include interest at the 90-day commercial rate.
d. Cal-Am should meet and confer with Water Division and DRA to develop DSIC tariff language that implements this decision. Within 60 days, Cal-Am shall file a tariff that includes the following:
(1) A statement of purpose and applicability, and definitions of terms;
(2) Descriptions and definitions of the categories of plant eligible for inclusion in a DSIC, by account number and type, and a description of supporting documentation to be provided for completed projects;
(3) The formulas for calculating the fixed costs that are collected via the customer surcharge; and
(4) The DSIC requirements, procedures, and customer safeguards.
e. Cal-Am should provide notification to customers in the form of a bill insert and a public notice (published in local newspapers) prior to initiating the first surcharge. It should consult with the Public Advisor on notice language.
f. In evaluating projects not included in this GRC review, Water Division should apply the following criteria: Does the expenditure contribute to an adequate ongoing level of new investment for the routine replacement and upgrades that are necessary to maintain adequate water service for customers? For these projects as well as authorized projects with final costs in excess of estimates found reasonable in the GRC, Cal-Am retains the same burden of proof to justify costs that we applied in our GRC review.
g. All surcharges will be reviewed in the next GRC proceeding prior to inclusion in rate base.
h. This pilot program will be reviewed in the next GRC proceeding.
9. Cal-Am has violated Rule 3.2(b) eleven times by its repeated failure to provide notice of its rate increase applications to the City of Inglewood and the County of Los Angeles.
10. Under the criteria established in D.98-12-075, Cal-Am should be fined $11,000 under Section 2107. This fine shall be paid to the State's General Fund.
11. We should deny the May 29, 2007 motions of California Water Service Company, Golden State Water Company, and California Water Association for party status.
IT IS ORDERED that:
1. The partial settlement between California-American Water Company (Cal-Am) and the Division of Ratepayer Advocates (DRA), for Cal-Am's Los Angeles District, attached as Attachment 2, is adopted. The utility plant amounts in Section 4.8 of the settlement that are designated in the record as subject to Cal-Am's Infrastructure System Replacement Surcharge (ISRS), Special Request Number 1, are separately addressed in this decision, consistent with Section 1.7(a) of the settlement.
2. The Los Angeles District revenue requirement tables, attached as Attachment 3, are adopted.
3. The specific capital projects and dollar amounts identified as ISRS in Attachment 2 to this decision are eligible for collection under the pilot Distribution System Infrastructure Charge (DSIC) surcharge, based on the Tier 3 advice letter mechanism specified in this decision and subject to a $1,323,588 cap for 2007. The cap for 2008 and 2009 will be adjusted based on revenue escalation factors.
4. We shall adopt as a pilot program for this general rate case (GRC) period a DSIC as follows:
i. The surcharge shall be based on the infrastructure projects reviewed and approved in this proceeding, identified in the Cal-Am/DRA settlement, and have a total cap of 7% of 2007 annual adopted revenues for the GRC period. The dollar cap for the entire GRC period is $1,323,588.
j. Cal-Am shall file by quarterly advice letter, under the Tier 3 procedures specified in D.07-01-024, for its DSIC surcharge. It should explicitly and clearly state in each advice letter filing, and provide supporting documentation, for (1) any project that was not approved in this GRC proceeding, and (2) any project that is included at an amount over the level authorized in this GRC proceeding.
k. To allow for interim recovery, each advice letter shall be effective immediately, subject to refund if necessary when the Commission issues its resolution. This "interim" surcharge should have a quarterly cap of 4% and any refunds should include interest at the 90-day commercial rate.
l. Cal-Am shall meet and confer with Water Division and DRA to develop DSIC tariff language that implements this decision. Within 60 days, Cal-Am shall file a tariff that includes the following:
(1) A statement of purpose and applicability, and definitions of terms;
(2) Descriptions and definitions of the categories of plant eligible for inclusion in a DSIC, by account number and type, and a description of supporting documentation to be provided for completed projects;
(3) The formulas for calculating the fixed costs that are collected via the customer surcharge; and
(4) The DSIC requirements, procedures, and customer safeguards.
5. Cal-Am shall make a supplemental filing within ten days of the effective date of this decision that addresses the Lead Action Levels in its Baldwin Hills subsystem. Its filing shall provide 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 shall explain why. This filing shall be reviewed in Phase 2 of this proceeding.
6. Cal-Am's proposed Water Revenue Adjustment Mechanism and a Modified Cost Balancing Account mechanism are rejected.
7. Cal-Am shall revise its 2008 Comprehensive Planning Study to include the infrastructure replacement strategy discussed in this decision.
8. A fine of $11,000 is imposed on Cal-Am under Public Utilities Code Section 2107. Within 15 days of the effective date of this decision, Cal-Am shall remit to the State's General Fund the amount of $11,000.
9. We grant the City of Bradbury's December 5, 2006 petition to intervene and deny the May 29, 2007 motions of California Water Service Company, Golden State Water Company, and California Water Association for party status.
This order is effective today.
Dated August 23, 2007, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
Commissioner Bohn reserves the right to file a concurrence.
/s/ JOHN BOHN
Commissioner
