19. Security Plan

In response to the events of September 11, 2001 and ongoing security-related warnings issued by the federal government, SCWC has developed a Security Plan in conformance with industry guidelines and the recently enacted Public Health and Bioterrorism Response Act signed by President Bush into law on June 12, 2002. SCWC indicates that it recognizes the need for increased security and is currently spending capital and O&M funds to that end.

In its application, SCWC included $15,250,193 for GO capital and $809,300 for GO O&M costs for the security plan. Rebuttal testimony revised the amount by spreading the costs over six years. This plan does not alter the cost components of the plan; it only spreads the implementation of the plan over two rate case cycles rather than implementing the entire program in a single year. SCWC's most recent position, as depicted in the Stipulation appendices, incorporates the six-year plan.

ORA opposes the $15.5 million security plan proposed by SCWC. ORA does not oppose increased security per se, but large expenditure and heightened security is an issue that affects all utilities after September 11, and would best be left to a separate proceeding. ORA argues that SCWC has not met the burden of proof for justifying such a large expenditure. ORA recommends the Commission require a separate application on this security plan or open an OII on this issue for water utilities specifically.

As discussed below, we will incorporate the company's six-year plan in the revenue requirement for this GRC cycle.

19.1. Discussion

SCWC is ultimately responsible for the security of its system and we will not interfere with the company's plans to address these important concerns. Our adopted capital expenditures will therefore include security plan amounts to be spent in 2003 and 2004 consistent with the six-year plan proposed by SCWC in Exhibit 42, Exhibit A.

For this application, SCWC has characterized its request to specifically include cost recovery for the following general security measures:⁵³

1. The purchase and installation of equipment for detection of intruders.

2. The purchase and installation of fencing, gating, lighting, or security cameras.

3. The re-keying of doors and locks.

4. Improvements to electronic, computer, or other automated systems and remote security systems.

While these appear to be reasonable measures, the reasonableness of SCWC's proposed program scope and estimated costs is somewhat difficult to ascertain. The record does not include the identification and justification of specific elements or projects⁵⁴ related to the capital expenditure proposal that is estimated to be over $15 million. Therefore, we recognize that the evidentiary record for these forecasted security related expenditures might not be as detailed as for other capital projects. However, due to the nature of capital cost recovery, we also realize that the majority of the recovery of the security plan capital costs will be based on actual recorded costs that will be used to determine rates in subsequent GRC proceedings. SCWC must be able to demonstrate the reasonableness of the completed elements of the security plan at any time in the future. As such, the company is at risk for cost recovery for completed elements of the plan on a prospective basis.

We are only authorizing security plan expenditures for Region III, which is the subject of this application, for the years 2003 and 2004 specifically and for the year 2005 by the attrition mechanism. We expect that as the political situation evolves over time, the perceptions of appropriate risk and costs may change. Such change should be incorporated prospectively, to the extent possible. Since, by this decision, GO costs determined in this proceeding will not be allocated to the other regions, those security plan costs will have to be recovered in GRCs for those regions. We expect that the security plan will continue to be evaluated at those times as well as in future GRCs for Region III. That evaluation may include the review of actual expenditures and necessary changes to the plan. If the Commission opens an OII on the subject of water utility security as suggested by ORA, the results of that investigation can be applied prospectively, as appropriate, to SCWC's plan.