4. Regional or Single Tariff Rates

ORA recommends that rates for Region III be determined for each of the districts in Region III based on a cost of service analysis for each of the districts. The Cities of San Dimas and Claremont support ORA's position for district specific rates. SCWC requests that the use of regional, or single tariff, rates be continued for its Region III. WPOA supports the company's position. This decision continues the use of regional rates, continues certain reporting requirements for SCWC and provides an opportunity for this issue to be addressed again in SCWC's next Region III GRC.

4.1. Background

At the request of SCWC in A.98-09-040, the Commission issued D.00-06-075, which established single tariff rates for Region III. The issue of single tariff (or regional) rates was controversial and in adopting SCWC's request, the Commission ordered the Water Division to monitor the impact of single tariff pricing and report in the next general rate case for SCWC's Region III with any recommendations for change. The current GRC proceeding for Region III is the proper proceeding for the Water Division to provide such recommendations.

Testimony by ORA and other interested parties was distributed on April 8, 2003. The advocacy function in water proceedings is now the responsibility of ORA rather than the Water Division. ORA recommended that regional rates be discontinued in favor of district specific rates. SCWC issued rebuttal on this issue on May 1, 2003.

On June 10, 2003, the Water Division issued a separate report on the effects of single tariff rates in Region III, specifically in response to the direction given in D.00-06-075. While the report criticizes single tariff pricing as being advantageous to SCWC's shareholders and appears to question the motives of the company in making the request for regional rates, it indicates that more time is needed to make a comprehensive assessment. The report recommends that SCWC be ordered to continue to provide the Commission with an annual report as previously ordered in D.00-06-075, along with additional information on low-income customers, and that in the next GRC, SCWC should provide the Commission with a final report that includes justification for continuation of regional rates.

4.2. Discussion

In A.98-09-040, the issue of single tariff or regional rates for SCWC's Region III was raised and fully litigated. In granting the company's request for such rates, D.00-06-075 provides a full description of the process and fully justifies the actions taken therein. In this proceeding, we have not been presented with sufficient cause or justification for reverting to district specific rates.

The regional rate issue is a policy matter and from that perspective, there are compelling arguments for both continuing and terminating single tariff rates. While we agree with SCWC that this is a pricing rather costing issue, ORA arguments related to price signals, potential subsidies, customer input, etc. have merit. However, the arguments, some of which were addressed in D.00-06-075, and the record in this case do not convince us to change our determinations that resulted in the establishment of regional rates. In D.00-06-075, we concluded that:

"A region-wide tariff will benefit existing and future customers in SCWC's Region III by stabilizing rates, making rates more affordable in the smaller rate districts, and facilitating investment in water supply infrastructure and water treatment facilities." (Conclusion of Law 1.)

We stated that an overriding concern that favors single tariff pricing is the affordability of water in several of the small communities in Region III. That concern and our conclusion in that case are also relevant to this proceeding. For example, under the numbers generated by this decision for test year 2003, a stand-alone rate methodology would result in an approximate 47% increase in rates for the Calipatria - Niland District, while the overall average increase to the region is approximately 12%. The disparate affect on Calipatria - Niland is even more dramatic when considering the contemplated water treatment plant. If and when that facility is completed, at least an additional $10.3 million in rate base will be added to the Calipatria - Niland CSA, either in this GRC cycle by separate application or in the next GRC. The current rate base for this district is $2.7 million. New plant costs of $10.3 million could cause rates to increase by an additional 65% above the 2003 increase under district rates, while on a regional basis, average rates would increase by about 1.5%. On a district rate basis, the potential increase for the Calipatria - Niland CSA in this GRC cycle could therefore be as much as 160% when considering the test year 2003 increase, the 2004 step increase, the 2005 attrition year increase and the potential treatment plant application.

Affordability is therefore a primary consideration in this proceeding as it was in A.98-09-040. SCWC has presented information showing that customers in certain high cost districts have benefited substantially from the regional rate structure with only a moderate effect on the subsidizing districts.⁷ For instance, at the end of 2001, a customer in Morongo Valley who would have paid $83.49/month under stand alone rates for 10 Ccf, instead paid $47.02/month under regional rates. The subsidization by other districts can be seen in Orange County where customers who would have paid $22.81/month under stand-alone rates for 10 Ccf, instead paid $24.12/month under regional rates. Regarding the low-income rate program, which SCWC states can only be offered in Region III because single tariff pricing is in place, the low-income customer in Region III, on average, received an annual benefit of $42.60 or $3.55/month, which cost other Region III customers only $0.32/month.⁸ From the aspect of affordability, regional rates appear to be functioning as anticipated in D.00-06-075. Since affordability continues to be a problem and regional rates can effectively address that problem, we will not alter the current rate structure as proposed by ORA and the City of San Dimas. Also, since we are affirming the viability of regional rates, we will not deny or defer this application as requested by the City of Claremont.

We re-emphasize that the decision, in A.98-09-040, to institute single tariff pricing in SCWC's Region III was largely policy based. It was understood that some districts would subsidize others and that the mix might change over time. It was understood that there were policy considerations and prior Commission practices that are not consistent with the idea of regional rates. However, along with the evidence presented in that proceeding, there were other policy considerations, especially that related to affordability, which persuaded us to grant SCWC's request. For essentially the same reasons, we have determined that it is reasonable to continue regional rates in this proceeding. At this point, we see no reason to require SCWC to further justify the existing rate structure in the next GRC as recommended by the Water Division. However, we recognize that there may be viable alternatives to regional rates and that subsequent investigation by others may provide a sound basis for altering the current rate structure. If so, any related decisions should be based on a comprehensive analysis and complete record.

For this reason we will require SCWC to continue to provide annual reports on regional rates as ordered and described in D.00-06-075. Those reports should be distributed to all appearances in this proceeding. In the next Region III GRC, parties may raise this issue again, but the burden will be on the parties to demonstrate why the rate structure should be altered as opposed to SCWC having to demonstrate why it should be continued.

In this proceeding, ORA raised specific concerns with the implementation and continuation of regional rates. While ORA's concerns have sound theoretical bases, there is little evidence or analysis that substantiates the validity and applicability of those concerns specifically with respect to the Region III rate structure. For instance, if the data is available, the potential subsidization of high income ratepayers in high cost districts by low income ratepayers in low cost districts could be objectively analyzed and problems specific to Region III, if they exist, could be demonstrated. Similarly changes in usage patterns by subsidized users and the effect on utility efficiencies could be demonstrated with facts and objective analyses. Such analyses should be the foundation for any proposals to alter the current rate structure.