California American Water
2015 General Rate Case
On July 1, 2013 California American Water (Cal Am) filed its Application with the CPUC requesting approval to increase customer rates from 2015 – 2017:
- 2015: $18.5 million or 9.55% increase
- 2016: $8.3 million or 3.90% increase
- 2017: $6.7 million or 3.02% increase
In its application, Cal Am reported the following residential bill impacts if the requested rate increase is granted:
- Larkfield District: A residential customer who uses 10 ccf of water per month will see approximately 4.2% increase in the base water bill (excluding surcharges) in 2015 from $73.84 to $76.96.
- Monterey County District: A customer who uses the district’s average of 6 ccf of water per month will see approximately a 9.2% increase in the base water bill (excluding surcharge) in 2015 from $33.91 to $37.03.
- Sacramento District: A residential customer who uses the district’s average of 14 ccf of water per month will see approximately a 10.3% increase in the base water bill (excluding surcharges) in 2015 from $50.23 to $55.42.
- Southern California Area: A residential customer who uses the area’s average of 17 ccf of water per month will see approximately a 9.6% increase in the base water bill (excluding surcharges) in 2015 from $57.42 to $62.92.
The main drivers of the proposed rate increases are capital investments, depreciation, general office costs, operating and maintenance costs, taxes, and reduced water sales.
On October 9, 2013 Cal Am filed its 100 day Update to its Application. On October 1, 2013, Cal Am filed Supplemental Testimony with its rate design proposal for all districts except Monterey. On December 1, 2013, Cal Am filed its Testimony with its rate design
proposal for the Monterey District.
The CPUC held Public Participation Hearings in Cal Am districts from April 23 – May 19, 2014.
Evidentiary hearings were held at the CPUC in June 2014.
Proposed Settlement & Litigated Issues
On July 25, 2014 ORA, Cal Am, the City of Pacific Grove, Las Palmas Wastewater Committee, and Monterey Peninsula Water Management District filed a partial Settlement requesting CPUC approval to adjust customer rates for 2015 to $3.353 million or a 1.64% increase. A number of contested issues also remained.
CPUC Proposed Decision on Cal Am's General Rate Case
On March 6, 2015, the CPUC issued a Proposed Decision that would partially grant the proposed Settlement Agreement, including the revenue requirement increase of $3.5 million for 2015. However, the Proposed Decision would deny the Settlement’s request for:
- Recovery of lost revenues related to Pacific Grove Projects, as they could be sought in Cal Am’s next GRC.
- A Cal Am Consumption Adjustment Mechanism, which would adjust the adopted sales forecast for escalation years of 2016 and 2017 if recorded aggregate sales for the past year are more than 5% different (higher/lower) than adopted test year sales.
The Proposed Decision would resolve the remaining contested issues:
- Grants ORA’s proposal to require Cal Am to file 2016 and 2017 escalation year filings for each district.
- Denies ORA’s proposal to require Cal Am to use its recorded ratebase up to, but not to exceed, the authorized ratebase to calculate its 2017 attrition year ratebase filing.
- Denies Cal Am’s request to capture any costs in a new memorandum account that are imposed by Placer County Water Agency as a result of the new purchased water agreement in the Sacramento District.
- Denies Cal Am’s request to record Placer County Water Agency’s peaking charges in its Purchased Water Balancing Account.
CPUC Final Decision
The ORA issued its Final Decision on April 9, 2016.
CPUC Decision on Cal Am Rule 1 Violations
In April 2015, the CPUC issued a Final Decision finding that Cal Am violated Rule 1.1 of the CPUC’s Rules of Practice and Procedure regarding Ethics. Rule 1.1 states:
“Any person who signs a pleading or brief, enters an appearance, offers testimony at a hearing, or transacts business with the Commission, by such act represents that he or she is authorized to do so and agrees to comply with the laws of this State; to maintain the respect due to the Commission, members of the Commission and its Administrative Law Judges; and never to mislead the Commission or its staff by an artifice or false statement of fact or law.
Note: Authority cited: Section 1701, Public Utilities Code. Reference: Section 1701, Public Utilities Code.”
The Proposed Decision found that by failing to file accurate Minimum Data Requirements in its General Rate Case Application and not promptly correcting this material misstatement, Cal Am violated the CPUC’s Rule 1.1. The scope of the discrepancy between information initially provided by Cal Am in the Minimum Data Requirements and information provided in response to ORA’s data requests was sufficiently severe that the Proposed Decision would order Cal Am to pay a fine of $870,000 to the General Fund of the State of California.
ORA Policy Position
ORA supports the Settlement because it allows Cal Am to operate its system safely and reliably, yet appropriately reduces cost. ORA’s analysis of Cal Am’s original request found that Cal Am over-estimated its needs in these key areas:
- Revenues: ORA used 5-years of recorded consumption data, compared with Cal Am’s 3 years, and found that given Cal Am’s revenues from proposed fees and higher water consumption that forecasted revenue should be 5% higher than the utility estimates.
- General Office Expenses: ORA finds that this expense should be 19% lower than Cal Am’s estimate, given that the utility’s legal and administrative forecasts are more than double the average of other comparable water utilities.
- District Operating Expenses: ORA removed duplicative multipliers which inflated Cal Am’s estimates.
- District Plant & Ratebase: While ORA included more than 90% of Cal Am’s plant estimates in this category, given the magnitude of the utility’s plant and infrastructure costs in this area, this category accounts for ORA’s largest proposed decreases to revenue estimates.
ORA also supports the Settlement because it will benefit customers by establishing clear policies and targets for reducing water losses in a cost-effective manner. For example, the Settlement Agreement would authorize:
- A 3-year combined budget total of $3,551,802 for conservation.
- Cal Am to continue tracking conservation expenses in a capped, one-way balancing account with any unspent funds refunded to ratepayers.
- A non-revenue water loss penalty/reward program for Monterey and multi-tiered block rate designs in several districts.
ORA is litigating the unresolved issues because:
- Step rate filings should be mandatory for Cal Am to ensure that districts in which Cal Am is over-earning will receive appropriate rate decreases.
- Cal Am should be required to calculate the attrition year using recorded rate base to ensure that customers are protected against paying for Cal Am’s return on rate base for projects that Cal Am does not build.
- Cal Am’s request to capture any costs imposed by Placer County Water Agency in the purchased water balancing account for the Sacramento District would ignore the CPUC’s previous determination that Cal Am has not presented any rationale as to why the CPUC’s ruling should be overturned.
- Cal Am’s request for a memorandum account to track costs associated with the Sacramento / Placer County purchased water supply is duplicative of Cal Am’s existing balancing account and these costs do not meet the criteria for establishing a new memorandum account.
See the Comparison Table by Cal Am water district.
ORA also addresses numerous Cal Am special requests, which are outlined in ORA’s Executive Summary.
See ORA’s March 28, 2014 Testimony for full details of ORA’s findings and positions.
See ORA’s August 5, 2013 Protest.
ORA's Motion to Open an Investigation
In fall 2013, ORA conducted field visits to Cal Am’s various service territories, offices, and plants as part of its audit of Cal Am’s request to increase customer rates. During these visits, it came to ORA’s attention that Cal Am had failed to complete a significant number of previously authorized projects – far more than the five projects Cal Am had identified in its CPUC Application, for which Cal Am customers had already paid.
Consequently, ORA filed a Motion with the CPUC to open a companion proceeding to investigate Cal Am as potentially violating the CPUC’s Rule 1.1, which requires the utilities it regulates to be forthcoming and not mislead the Commission.
See ORA's March 17, 2014 Brief.
See ORA's March 28, 2014 Reply Brief.
See ORA’s November 12, 2013 Motion for a Companion Order Instituting an Investigation.
See the Proceeding docket.
ORA Cal Am Archives