NARUC SUMMER COMMITTEE MEETINGS

1
NARUCSUMMER COMMITTEE MEETINGS

• Committee on Water Agenda
• California Regulatory Initiatives
• Case History California American Water
• B. Kent Turner President California American
  Water
• July 16, 2007

2
Background

• California PUCs Water Action Plan approved in
  December 2005. Adopts four key water principles
• Safe, high quality water
• Highly reliable water supplies
• Efficient use of water
• Reasonable rates and viable utilities

3
California American Water Had Several
Pre-Existing Programs

• Some conservation programs in all districts
• Low Income proposals made in a number of cases
• Consolidated tariffs in some service areas
• Active intense conservation program in Monterey
• Inclining block rate structure in Monterey -
  based on individual customer needs
• Active low income program in Monterey

4
California American Water Proposals in Los
Angeles District Rate Case Filed January 2006

• Implementation of an Infrastructure System
  Replacement Surcharge (ISRS) (DSIC-like program)
• All utility plant replacements part of proposed
  ISRS.
• Cant be revenue generating or expense reducing.
• ISRS adjusted quarterly, based on completed plant
  additions.
• Implementation would be ministerial, approved in
  15 days.
• All ISRS-related capital expenditures subject to
  prior review and full examination prior to being
  recovered in base rates.

5
L.A. District GRC Proposals (continued)

• Variation from current CPUC tariff
• Place more fixed cost recovery in quantity rate
• Tiered rates for residential customers
• Approve a Water Revenue Adjustment Mechanism to
  track lost revenues and implement revenue/sales
  decoupling
• Approve only with other requests in the case are
  approved
• Full integration of rate tariffs in Los Angeles
• Remove current rate differential between service
  areas due to purchased water and power rates

6
L.A. District GRC Proposals(continued)

• Implement a Low Income Rate Assistance Tariff
• Implement Full-Cost Purchased Water and Power
  Balancing Accounts
• In conjunction with proposed rate design,
  conservation programs
• Keeps customers and company whole
• Implement Conservation Program, Memorandum
  Account
• Provide incentives to promote conservation
• Allocate funding to comply with Best Management
  Practices
• Memorandum account facilitates recovery of
  prudently incurred expenditures

7
Intra-Case Rulings and Agreements

• Case Bifurcated into Two Phases
• Phase 1 development of revenue requirement
• Phase 2 determination of rate design, related
  items
• Phase 2 Includes
• All rate design issues
• WRAM Account determination
• Changes in purchased water and power balancing
  accounts
• Agreement Reached on Most Revenue Requirement
  Issues
• Settlement Reached on LIRA proposal - Allows
  monthly fixed fee rebate to qualified individuals

8
Intra-Case Rulings and Agreements (continued)

• Settlement Reached on Conservation Program
• Allows increased spending, memorandum account to
  track all incurred costs
• Allowance for additional water auditing resources
• Agreement that California American Water would
  not seek full consolidated rates
• Conceptual Settlement Reached on All Phase 2
  issues
• Service charges reduced to 25 of fixed cost
  recovery
• Three-tier residential rate design with a
  winter/summer component rate blocks would be
  fairly large and compressed
• Single-tier commercial rate design with
  winter/summer component

9
Intra-Case Rulings and Agreements (continued)

• Water Revenue Adjustment Mechanism
• Will track all variances in fixed cost recovery
  from the adopted amount in a rate case
• Revenue decoupling mechanism
• Implement Modified Cost Balancing Account
• Tracks variations in purchased water and power
  costs due to production changes
• Approved mechanism would use decision-adopted
  source production requirements based on usage

10
Items Related to WAP that Remain Open

• No Agreement on WRAM and ROE Adjustment
• DRA initially requested a 300 basis point
  reduction in authorized ROE (against the existing
  authorized ROE, not requested ROE)
• DRA subsequently modified its request to a range
  of 150 to 300 bp reduction
• No Agreement on ISRS Implementation

11
ALJs Initial Proposed Decision

• Requires a 50 bp Reduction in Authorized ROE
• Per implementation of WRAM account and Modified
  Cost Balancing Accounts
• Decision to reduce ROE by 50 bp based on limited
  hearing input
• Decision to reduce the ROE misapplies energy
  utility experience CPUC, considered, but never
  specified a reduction in authorized ROE
• Would set precedent for other water companies
• Does not consider all risk impacts
• Authorizes an ISRS, but much more restrictive
  than company proposal

12
ALJs Initial Proposed Decision(continued)

• Requires Full Review of All ISRS Additions Before
  Approval of the Surcharge
• All Differences in Costs Between Projects
  Proposed and Which Actually Occur Have to be
  Fully Explained

13
Current Proceeding Status

• Initial PD Modified Twice Due to Comments of
  Parties
• 50 bp ROE reduction will be removed if a
  Conservation Loss Adjustment Mechanism replaces
  the WRAM
• CLAM only tracks effects of estimated revenue
  variances due to conservation programs and rate
  designs
• WRAM decouples sales from revenues tracks
  variances in fixed cost recoveries
• Phase 1 Decision Held until August for Possible
  Issuance of an Alternate Decision Addressing the
  ROE Adjustment Issue
• Proposed Decision in Phase 2 Cant be Issued
  until Phase 1 is Resolved and a Hearing on Phase
  2 Issues is Held