ABSTRACT: On Thursday, 21 October 2010, the proposed decision of Administrative Law Judge (ALJ) Angela K. Minkin was filed regarding the Matter of the Application of California-American Water Company (U210W) for a Certificate of Public Convenience and Necessity to Construct and Operate its Coastal Water Project to Resolve the Long-Term Water Supply Deficit in its Monterey District and to Recover All Present and Future Costs in Connection Therewith in Rates. DRAFT “Digest of Differences Between ALJ Minkin’s Proposed Decision and the Alternate Proposed Decision of Commissioner Bohn” is reproduced and ALJ Minkin’s DRAFT DECISION APPROVING REGIONAL PROJECT, ADOPTING SETTLEMENT AGREEMENT, WITH MODIFICATIONS, AND ISSUING CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR CALIFORNIA-AMERICAN WATER FACILITIES is uploaded for review and Summary is reproduced.
Digest of Differences Between ALJ Minkin’s Proposed Decision and the Alternate Proposed Decision of Commissioner Bohn
A.04-09-019: In the Matter of the Application of California-American Water
Company (Cal-AM) (U210W) for a Certificate of Public Convenience and Necessity to Construct and Operate its Coastal Water Project to Resolve the Long-Term Water Supply Deficit in its Monterey District and to Recover All Present and Future Costs in Connection Therewith in Rates
Pursuant to Public Utilities Code § 311(e), this is the digest of the substantive differences between the proposed decision (PD) of Administrative Law Judge Angela Minkin (mailed on October 21, 2010) and the proposed alternate decision (APD) of Commissioner John Bohn (also mailed on October 21, 2010).
The proposed decision in this matter finds that the following modifications to the proposed Settlement Agreement and Water Purchase Agreement should be adopted:
1. The PD finds that the capital cost cap for the Regional Project facilities should be limited to $227.4 million. The PD sets an absolute cost cap ceiling of $275.5 million, beyond which cost recovery from California-American Water Company’s (Cal-Am) ratepayers will not be allowed.
2. The PD removes the idea of a fees “limit” and concludes that any fees charged by Marina Coast Water District for new connections as the former Fort Ord area is developed should be contributed to offset the indebtedness of the
Regional Project, which will reduce overall costs to Cal-Am ratepayers.
3. Because the financing plans are not final, the PD modifies the Settlement Agreement and Water Purchase Agreement to require Cal-Am to file and serve the financing plans in this proceeding. To the extent that the financing plan
determines that the cost of debt will not exceed 6%, the debt service coverage is set at 1.0 and that State Revolving Fund loans or grants can be accessed, the PD states that the Commission will accept the filing as a compliance filing. While not asserting jurisdiction over the Public Agencies, if the terms of the financing plan exceed these limits, the PD states that the Commission must review and approve the financing plan.
4. As proposed by the Settling Parties, the PD finds that a representative of the Monterey Peninsula Cities known as the Municipal Advisor should be added to the Advisory Committee. The PD modifies this provision by determining that the Municipal Advisor should be granted full voting Party status for purposes of decision-making for the Regional Project, as defined in the Water Purchase
Agreement.
5. The PD adopts a capital cost cap of $95 million for the Cal-Am only facilities, the most probable estimated cost of construction. The PD also sets an absolute cost cap of $106.875 million, beyond which Cal-Am ratepayer funding will not be authorized.
6. The PD revises the interest rate applied to the Allowance for Funds Used During Construction and applies the rate proposed by DRA, i.e., the risk-adjusted two-year corporate borrowing rate (currently 2.46%) to compensate Cal-Am for its carrying costs.
7. To the extent that the capital costs exceed the initial cost caps established but are less than the absolute ceiling placed on the Regional Facilities and the Cal-Am-owned facilities, the PD requires Cal-Am to file an application to justify why ratepayers should pay for additional costs.
8. The PD also makes three modifications to the advice letter procedure proposed by the Settling Parties. First, Cal-Am is required to file Tier 3 advice letters to recover its purchased water costs and requires 120 days for staff processing of these advice letters. Second, in order to recover the costs for Cal-Am facilities, the PD also requires Cal-Am to file Tier 3 advice letters and requires 120 days for staff processing of these advice letters. Finally, because the PD requires Cal-Am to file an application requesting
recovery of capital costs incurred above the capital cost cap of $95 million (but below the absolute cap of $106.875 million), the Settlement Agreement must be modified to revise the procedure for the final advice letter filing. To the
extent that costs for the Cal-Am facilities are equal to or less than $95 million, Cal-Am may file a final advice letter. To the extent that those costs exceed $95 million but are less than $106.875 million, Cal-Am must file an application to request recovery of the incremental costs.
9. The PD finds that it is reasonable to review Operation and Maintenance (O&M) costs in a separate phase of this proceeding, or in a successor proceeding.
As the Settling Parties have agreed, the PD requires Cal-Am to submit regular
status reports on the permitting, financing, design, bidding, and construction of the Regional Project to the Executive Director and to the Director of the Division of Water and Audits (DWA). The PD also requires Cal-Am to meet quarterly with the Division of Ratepayer Advocates (DRA) and DWA staff. No
modification is required to effectuate this requirement.
The APD differs from the Proposed Decision in the following areas:
1. The APD adopts a capital cost cap for the Regional Project facilities of $224.4 million, and sets a cost cap ceiling of $272.5 million. Cost recovery from Cal-Am’s ratepayers above the cost cap ceiling will only be allowed upon a showing of exceptional circumstances and subject to a rigorous reasonableness review.
2. The APD increases Marina Coast Water District’s (MCWD) contribution to $25 million, which consists of $22 million associated with new connection fees and $3 million for the associated intangible benefits that MCWD will receive from participating in the Regional Project.
3. As with the PD, the APD finds that a representative of the Monterey Peninsula Cities known as the Municipal Advisor should be added to the Advisory Committee. However, the APD does not conclude that the Municipal Advisor should be granted full voting Party status.
4. The APD adopts a capital cost cap of $95 million for the Cal-Am only facilities, and sets a cost cap ceiling of $106.875 million. Cost recovery from Cal Am’s ratepayers above the cost cap ceiling will be allowed upon a showing
of exceptional circumstances and subject to a rigorous reasonableness review.
5. The APD revises the interest rate applied to the Allowance for Funds Used during Construction to reflect the actual cost of borrowing. The APD adopts an interim rate of 4.00%, with a true-up for the actual carrying cost.
DRAFT
Decision PROPOSED DECISION OF ALJ MINKIN (Mailed 10/21/2010)
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
In the Matter of the Application of California-American Water Company
(U210W) for a Certificate of Public Convenience and Necessity to Construct and Operate its Coastal Water Project to Resolve the Long-Term Water Supply Deficit in its Monterey District and to Recover All Present and Future Costs in Connection Therewith in Rates.
_ALJ_ Angela K. Minkinproposeddecision
DRAFT
DECISION APPROVING REGIONAL PROJECT, ADOPTING SETTLEMENT AGREEMENT, WITH MODIFICATIONS, AND ISSUING CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR CALIFORNIA-AMERICAN WATER FACILITIES
1. Summary
California-American Water Company (Cal-Am) has applied for a Certificate of Public Convenience and Necessity (CPCN) in order to provide a solution to the long-standing constraints on water supply on the Monterey Peninsula. This effort is known as the Coastal Water Project. Cal-Am is under order from the State Water Resources Control Board to cease diverting water to which it has no legal rights, determined in 1995 to be 10,730 acre feet of water per year from the Carmel River. The utility must also replace 2,975 acre feet of water per year in allocations from the Seaside Basin.1
By today’s decision, we modify the proposed Settlement Agreement that has been filed by Cal-Am, Marina Coast Water District, Monterey County Water Resources Agency, Monterey Water Regional Pollution Control Agency, the Surfrider Foundation, the Public Trust Alliance, and Citizens for Public Water (Settling Parties).2 The Settlement Agreement proposes a public-private partnership, known as the Regional Project, to solve the long-standing water supply deficit on the Monterey Peninsula. With these modifications, we approve the Settlement Agreement and Implementing Agreements, and approve the Regional Project, as discussed below.
As proposed by the Settling Parties, Monterey County Water Resources Agency would own, construct, operate, and maintain the source water wells and raw water conveyance facilities to the desalination plant. Marina Coast Water District would own, construct, operate, and maintain the desalination plant and
the product water conveyance facilities to the delivery point, which then becomes Cal-Am’s intake point. Cal-Am would own, construct, operate, and
maintain the pipeline, conveyance, and pumping facilities necessary to deliver the water to its customers. The Monterey Regional Water Pollution Control
Authority would own, operate, and maintain the outfall for return of the brine to the sea.
In approving the modified Settlement Agreement and Water Purchase Agreement, we approve Cal-Am’s participation in the Settlement Agreement and issue a CPCN to Cal-Am for the following components of the Regional Project: the transfer pipeline, the Seaside pipeline, the Monterey pipeline, including the Valley Greens pump station, the Terminal Reservoirs, and the Aquifer Storage and Recovery facilities.
With the modifications we adopt today, and assuming that lower cost financing can be obtained by the Public Agencies, that the construction period does not exceed 3.5 years, and that the debt service coverage does not exceed 1.0, the incremental first year revenue requirement to the Monterey District ratepayers is not anticipated to exceed $44.1 million. We recognize that even under the best case scenario, the revenue requirement for Cal-Am’s Monterey District customers would increase by approximately 63%, as compared to the projected trend of the current revenue requirement.3 Cost allocation and rate design related to the Coastal Water Project will be addressed in Phase 3 of this proceeding and will be coordinated with Cal-Am’s current General Rate Case proceeding, Application (A.) 10-07-007.
We do not undertake these modifications lightly. We recognize the pressing need for the Regional Project, as well as the aligned goals of all parties and the residents and businesses on the Monterey Peninsula to ensure that a secure supply of water is available before the severe water restrictions imposed by the State Water Resource Control Board’s Cease and Desist Order are fully implemented in 2016.
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