DRA found that the long-term capital cost rates for U.S. corporations are currently at their lowest levels in more than four decades and this decrease needs to be reflected through reduced earnings for California's largest water utilities.
Therefore, DRA recommends that California’s three largest water utilities, California Water Service Company (CWSC), California-American Water Company (CAWC), and Golden State Water Company (GSWC) receive a 9.0% return on equity to reflect the decreased overall capital costs. This recommendation includes an adjustment to reflect the reduction in business risk caused by the utilities’ ability to recover fixed costs even if revenues decrease as customers conserve more water.
DRA’s report was compiled by Dr. J. Randall Woolridge, a Professor of Finance in Business Administration at the University Park Campus of Pennsylvania State University.