Rate Case Roundup: California

Pursuant to an unopposed settlement agreement, the California Public Service Commission permitted a water utility to raise its rates and charges for customers in two of its service divisions. The utility, San Gabriel Valley Water Company, had submitted a three-year rate plan for both its Los Angeles and Fontana districts.

For the former, the first-year (2017) increase would be almost $14.477 million, followed by a further increase of nearly $3.6 million in 2018 and $4.778 million in 2019. For the Fontana division, even higher increases were proposed, of $20.6 million for 2017, $1.76 million in 2018, and $2.665 million in 2019.

As set forth in the stipulation, however, rates in the Los Angeles division will rise by only $7.233 million in 2017, by $2.33 million in 2018, and by $2.565 million in 2019. That means that the cumulative threeyear increase for the Los Angeles district will be less than what the utility had initially sought for 2017 alone. According to the commission, the rate hike effective in 2017 equates to an increase of 11.3%.

The rate agreement paints a different picture for the Fontana district, however, providing for a first-year increase of $18.3 million and secondand third-year increases of $2.56 million and $2.8 million, respectively. The new rate schedules reflect a total increase surpassing 30%. Cost of capital was not discussed in the proffered settlement, such that no ROE was specified in the stipulation.

However, an overall rate of return on rate base of 8.49% was adopted for both of the divisions. The utility had claimed that its present rates had translated into a return of only 5.96% for its Los Angeles district and an even lower 3.06% for its Fontana division. Such weak returns accounted in part for the company's request to raise its rates. The utility indicated that its poor earnings made it difficult to access capital markets for financing badly needed infrastructure improvements.

As is the case with many utilities, the company attested that its network of pipelines and mains has deteriorated, with many segments requiring replacements and upgrades. The utility informed the commission that past persistent drought conditions had also impacted parts of its system, necessitating construction of new facilities as substitutes for drought-contaminated wells. For the Fontana division, for instance, the utility said it expects to devote at least $25 million to such work during the rate-effective period. Re San Gabriel Valley Water Co., Decision 17-06-008, Application 16-01-002, June 15, 2017 (Cal.P.U.C.).