California PUC Issues Final Resolution for Cold Springs Water
SUMMARY
By Advice Letter (AL) 75-W, filed on
This Resolution grants CSWC an increase in gross annual revenues of
BACKGROUND
CSWC is a Class C investor-owned water utility with 533 metered service connections, as reported in its 2019 annual report, and provides service in or near
CSWC's source of supply consists of the
The permit revision removed two provisions regarding requirements for bacteriological monitoring and treatment, accurately renamed the active permitted groundwater source, and reclassified the Chief Distribution Operator requirement for operating CSWC's water system from a Grade II Distribution Operator to a Grade I Distribution Operator./5
Prior to the 2018 revision, the permit previously identified the utility's groundwater source as "Well 2" without being tied to the same source known as the "Peter Pam" well./6
The
The Engineering Report also indicates a maximum day demand (MDD) of 72 gpm, and an estimated peak hour demand (PHD) of 108 gpm. Furthermore, the Engineering Report and DDW's Sanitary Report confirms that CSWC has adequate source capacity to meet both MDD and PHD without the use of storage./8
NOTICE, PROTESTS, AND PUBLIC MEETING
In accordance with
One customer protest was timely received, and the utility provided a response to the protest. The protest expressed concerns regarding the amount of the requested rate increase and the accuracy of the utility's proposed capital improvement costs. CSWC responded to the customer's protest via mail, e-mail, and telephone call to address the customer's concerns. The utility in its response to the customer's protest explained that the magnitude of the rate increase was due to the infrequent GRC filing requests submitted to the CPUC, and also assured the customer that the proposed rate structure is intended to be equitable to both full-time and part-time customers.
As discussed in more detail in the Rates and Rate Design section of this Resolution, the WD finds CSWC's proposed rate design for this GRC reasonable and consistent with prior Commission adopted rate designs for the utility in TYs 2012 and 2017. The proposed rate design (allocation of 80.00% of the fixed costs to the service charge) is intended to balance the rates paid by full-time and part-time residents. The utility's proposed rate design also attempts to minimize the increase to the quantity usage rate, which intends to mitigate the overall bill increase to all customers. In contrast, if WD applies a rate design that allocates less of the utility fixed costs to the service charge (i.e., allocating 70.00% of the fixed costs), this would increase the quantity rate because more of the fixed costs would be allocated to the quantity rate and would result in higher water bills to all customers. This type of rate design would have a greater impact on the full-time customers that make-up a smaller portion of the utility's customer base and actively use water service on a more regular basis.
Regarding the capital improvement costs, CSWC provided invoices and documentation to support and substantiate its capital expenditures and completion of the projects listed in Appendix E, which WD reviewed and verified, as further discussed in the Utility Plant and Rate Base section of this Resolution.
On
On
DISCUSSION
In reviewing CSWC's rate increase request, the WD conducted an independent analysis of the utility's rate increase request and its operations. Appendix A provides CSWC's and the WD's estimated Summary of Earnings (SOE) at present, requested, and recommended rates. CSWC was informed of the differing views of revenues, expenses and rate base, and the utility agrees with the WD's recommended revenue requirement and rates shown in Appendix B.
Operating Revenues
CSWC in its present rate revenue calculation included
Operating Expenses
The WD verified CSWC's operating expenses estimates for TY 2020 by reviewing supporting documents for substantiation and accuracy and included the amounts that were deemed reasonable and prudent.
CSWC based most of its operating expenses estimates on a three-year average from 2017 through 2019 reported operating expenses from its annual reports. The utility did not apply an escalation factor to escalate its operating expense estimates to TY 2020 dollars. WD reviewed the annual reports and verified the utility's calculations. Based on the WD's review of the utility expense estimates for TY 2020, the WD finds CSWC's operating expense estimates reasonable for:
CSWC, in estimating several of its operating expenses for TY 2020, inadvertently used incorrect 2017 operating expense figures that were different from what the utility reported in its 2017 annual report for the following expenses: Other Volume Related Expenses, Contract Work, Other Plant Maintenance Expenses, Employee Pensions and Benefits, Professional Services, and General Expenses. This inconsistency resulted in the differences between the WD's and the utility's estimates for these operating expenses, as shown in Appendix A. To correct this error, the WD used 2017 recorded expenses in its three-year average computations for estimating these expenses for TY 2020. The utility agrees with the WD's operating expense computation and estimates for TY 2020 for these cost categories.
Employee Labor
CSWC requested
In support of its employee labor request, CSWC provided job descriptions for the "shift operation manager" and the "relief operator" to the WD staff. CSWC's requires its shift operation manager to have at minimum a Grade II Water Treatment Plant Operator certificate and a Grade I Distribution System Operator certificate from the SWRCB. CSWC's shift operation manager is responsible for: water quality testing, monitoring, and recordkeeping as required by the SWRCB; leak repair; new service connection installations and service box maintenance; water storage tank monitoring and control; water source and storage facility maintenance; filter maintenance; and snow plowing of water utility properties and the commercial center in the winter.
CSWC's relief system operator position requires a Grade I Water Treatment Plant Operator and a Grade I Distribution System Operator certifications from the SWRCB. The relief operator is responsible for relieving and supporting the shift operation manager. Based on the required certifications and level of responsibility, WD finds CSWC's request of
Office Salaries
CSWC requested
The office manager and accounting specialist is responsible for an extensive number of duties, which include: customer service; meter reading and billing; leak detection and reporting; managing accounts receivables and payables; maintaining operator license records; processing payroll; and preparing regulatory records and reports. CSWC's office staff position requires a minimum of seven years of bookkeeping and accounting experience as well as the ability to maintain regulatory documents for governing agencies. Based on the required experience and level of responsibility WD finds CSWC's request of
Management Salaries
CSWC requested
Professional Services
WD's estimate of professional services for TY 2020 is less than CSWC's estimate. As previously noted, the utility used an amount different from what was recorded in its 2017 Annual report for its professional service expense estimate of
Professional services includes expenses for professional engineering service consultation for system improvements and tax preparation services.
Insurance
CSWC requested
Taxes
WD's State and Federal Income Taxes estimates for CSWC's income tax expense for this GRC are based on income tax rates of 8.84%/13 for State and 21.00% for Federal Income Taxes for C-corporations. CWSC is structured as a C-corporation. Accordingly, WD's State and Federal Income Tax expense estimates for CSWC's TY 2020 GRC are
Utility Plant and Rate Base
For TY 2020, WD's analysis of CSWC's rate base estimate included examining utility plant-in-service since the utility's last GRC authorized by Res. W-5135. The WD also reviewed utility plant additions, materials and supplies, working cash, and depreciation reserve.
Utility Plant
The WD's estimate for average utility plant is
The WD reviewed all invoices and verified CSWC's
CSWC's total utility plant estimate is
WD reviewed and confirmed CSWC's completed capital projects and expenditures for TY 2020 and determined that they were different from what the utility proposed in its GRC filing and workpapers. Appendix E of this Resolution provides a comparison table identifying these differences. WD confirmed that CSWC completed
CSWC's accumulated depreciation reserve estimate for TY 2020 is
The WD is in agreement with CSWC's recorded Contribution in Aid of Construction (CIAC) in the amount of
The working cash allowance calculation is directly correlated with the amount of the utility's operating expenses. The WD used one month of total expenses, consistent with the Simplified Method described in Standard Practice U-16 for its cash allowance calculation. Accordingly, WD's estimate of
Based on these calculations, WD's rate base estimate for TY 2020 is
Rate of Return and Rate of Margin
CSWC's rate increase request was based on a Rate of Margin (ROM) of 22.57%. In accordance with Commission ratemaking policies adopted for Class C and D water utilities by D.92-03-093, two methods can be used for ratemaking: the Rate of Return (ROR) and ROM methods./16
D.92-03-093 directs the WD to calculate the company's rates and revenue requirement using both of these methods and to recommend the ratemaking method resulting in the greater revenue requirement./17
In this general rate case, the WD determined that the ROM method produced the higher revenue requirement. For TY 2020, the WD's recommended ROM for Class C water utilities is 22.57%./18
Using the recommended ROM, the WD calculated a revenue requirement of
Rates and Rate Design
CSWC's rate structure consists of one rate schedule, Schedule No. 1: General Metered Service. At the recommended ROM, the increase in revenues for TY 2020 will be approximately
CSWC currently serves 533 metered service connections, which is marginally greater than the 500-customer minimum threshold required for a water utility to be classified as Class C. In the last two GRCs for TY 2012 and TY 2017, the Commission adopted an "in-between" rate design for CSWC where it authorized 88.10% and 82.50% fixed cost allocation to the service charge, respectively./20
CSWC currently serves 55 full-time customers, with the remaining customer base consisting of part-time residents that own vacation homes. The challenge for CSWC's rate design is balancing the interests of the full-time versus the part-time customers. Recovering more of the fixed costs through the service charge benefits the full-time customers since the resulting increase to quantity rates reduces the amount of the overall bill for the customers that use water service on a year-round basis. Recovering more of the fixed costs through the quantity rate would benefit the part-time customers who own vacation homes, since they would not be paying the increased quantity rates during periods when their vacation homes are not in use. This results in lower bills for part-time customers based mostly on the service charge during those inactive periods. Recovering more costs through the quantity rate would also encourage conservation. If a Class C rate design is used with 65.00% of fixed costs allocated to the service charge, the quantity rate would be
In the last GRC for TY 2017, approved by Commission Res. W-5135, the Commission approved a rate design which authorized 82.50% of fixed costs to be allocated to the metered service charge, which represented a mid-point fixed cost allocation between a Class C and D water utility. In this GRC filing, the utility proposes to allocate 80.00% of fixed costs to the service charge. The WD finds it reasonable for CSWC to continue using the mid-point allocation of fixed costs to the service charge rate design for this GRC. The WD also recommends maintaining the quantity rate at
At the recommended rates for TY 2020, a monthly bill for an average residential customer with a 5/8 x 3/4-inch meter that uses 3.5 CCF will increase from
The Utility Rate Comparison table below provides a monthly rate comparison with nearby water utilities.
Affordability of Proposed Rates
As discussed above at the recommended rates for TY 2020, a monthly customer's bill for an average residential customer with a 5/8 x 3/4-inch meter that uses 3.5 CCF will increase from
We note that affordability criteria have not been developed or adopted in any Commission Decision or current law. However, the Commission adheres to cost-of service regulatory principles in developing rates for its jurisdictional utilities, and WD's recommended rates for CSWC are, at a minimum, required to satisfy the utility's technical, managerial, and financial capacity. This discussion regarding affordability is intended to demonstrate the relationship between the proposed rates and local incomes.
ENVIRONMENTAL AND SOCIAL JUSTICE
In
COMPLIANCE
CSWC has no outstanding compliance orders and has been filing annual reports as required. CSWC is in compliance with the SWRCB's DDW applicable water quality standards and regulations for safe drinking water. WD also conducted a review of CSWC's last financial audit report prepared by the Commission's Utility Audit Branch (formerly the Utility Audit, Finance, and Compliance Branch) and found no outstanding compliance orders./23
Pursuant to PU Code Sec. 433(a), public utilities are required to pay an annual Public Utilities Reimbursement Fee (annual fee) to the CPUC. The WD confirmed with the CPUC's Fiscal Office that CSWC is current with its annual user fee payments.
UTILITY SAFETY
Safety for water utilities involves a number of factors, including but not limited to water quality, system design, operation and maintenance, and service. One of the highest safety priorities for the Commission is to ensure that water utilities serving water for human consumption provide water that is not harmful or dangerous to health. As previously noted, CSWC is in compliance with the SWRCB's applicable water quality standards for safe drinking water.
COMMENTS
Public Utilities Code section 311(g)(1) provides that Resolutions generally must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission.
Accordingly, the draft Resolution was mailed to the service list, protestants, and made available for public comment on
FINDINGS
1. The Summary of Earnings (Appendix A) recommended by the Water Division (WD) is reasonable and should be adopted.
2. The rates recommended by WD (Appendix B) are reasonable and should be adopted.
3. The quantities (Appendix D) used to develop WD's recommendations are reasonable and should be adopted.
4. The water rate increase authorized herein is justified and the resulting rates are just and reasonable.
5. The WD reviewed all invoices and verified the
6. The WD confirmed through the documentation provided by
7. The WD finds CSWC's
8. The water served by CSWC meets all applicable water quality standards set-forth by
9. CSWC should be allowed to file a supplement to Advice Letter 75-W to incorporate the revised rate schedules (Appendix B) and to concurrently cancel its presently effective rate schedules.
THEREFORE, IT IS ORDERED THAT:
1. Authority is granted under Public Utilities Code Section 454, for
This Resolution is effective today.
I certify that the foregoing Resolution was duly introduced, passed, and adopted at a conference of the
Commissioners
* * *
View footnotes at https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M399/K247/399247686.pdf
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