Decision and Resolution Authorizations Applied to All Investor-Owned Water Utilities

CPUC User Fee

Public Utilities Code Section 431 requires that the commission annually determine a fee to be paid by every electrical, gas, telephone, telegraph, water, sewer system, and heat corporation and every other public utility providing service directly to customers.  The annual fee shall be established to produce a total amount equal to that amount established in the authorized commission budget for the same year, including adjustments for increases in employee compensation, other increases appropriated by the Legislature, and an appropriate reserve to regulate public utilities less the amount to be paid from special accounts or funds pursuant to Section 402, reimbursements, federal funds, and any other revenues, and the amount of unencumbered funds from the preceding year.

Resolution M-4839, dated January 10, 2019, implements PU Code 431 by establishing a User Fee for Water and Sewer System Corporation customers.  For 2019, the User Fee is set at 1.23% of water utility revenue.  This rate is lowered from the 2018 fee rate which was set at 1.40% of water utility revenue through Resolution M-4832.

 

Decision 18-03-035 & 18-12-002: Cost of Capital

The General Rate Case (GRC) for a water utility sets rates based on the amounts of infrastructure improvements, operation expenses, and water sales approved by the CPUC.  The Cost of Capital proceeding sets rates based on the amount of return a utility can earn on their infrastructure improvements, known as the Rate of Return or ROR.  The CPUC requires each of the nine Class A utilities to file a formal application every three years to analyze and determine the reasonableness of the utility's ROR.  The new ROR is then implemented and incorporated into rates either in the utility's next GRC or through an Advice Letter filing.  The ROR set in the Cost of Capital proceeding does not guarantee the utility will earn on its current infrastructure improvements but provides the utility an opportunity to receive proper funds for future infrastructure improvements.

The most recent authorized Cost of Capital decisions are D.18-03-035 for California Water Service, California-American Water Company, Golden State Water Company, and San Jose Water Company; and D.18-12-002 for Great Oaks Water Company, Liberty Utilities (Apple Valley and Park Water Company), San Gabriel Valley Water Company, and Suburban Water Systems.

 

Small Water Utilities: Rate of Return and Rate of Margin

Rate of Return (ROR) is the amount of return a utility can earn on their infrastructure improvements.  Rate of Margin (ROM) is the amount of return a utility can earn on their operation expenses and can only be applied to small water utilities with less than 10,000 connections.  The ROM is used when a utility does not have any infrastructure improvements and provides a financial cushion in case operation expenses increase and/or revenues decrease unexpectedly.

When a small water utility files for a GRC, Water Division determines the appropriate ROR and ROM and selects the method that produces the higher revenue for the utility, consistent with D.92-03-093.  For Class B utilities (between 2,000 and 10,000 connections), the ROR and ROM is reassessed every time the utility files for a GRC.  For Class C and D utilities (less than 2,000 and 500 connections), Water Division releases a memorandum each year that sets the range of ROR and ROM a utility can earn.  The most recent memo was released on February 25, 2019.

 

 


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