R.11-11-08 - “Postage Stamp Rates” OIR

1. R.11-11-08 - “Postage Stamp Rates” OIR LIOB Meeting – January 2012 CPUC – Division of Water and Audits

2. 2010 Water Action Plan “Roadmap for water policies and priorities in response to increasing statewide concerns about water quality and supply and the Commission’s desire to implement innovative solutions to water problems.” • 4 Key Principles : • Safe, high quality water • Highly reliable water supplies • Efficient use of water • Reasonable rates and viable utilities • 6 Main Objectives: • Maintain highest standards of water quality • Strengthen water conservations programs to a level comparable to that of the energy utilities • Promote water infrastructure investment • Assist low-income ratepayer • Streamline Commission regulatory decision-making • Set rates that balance investment, conservation, and affordability OIR was opened on November 18, 2011, to address the sixth Objective of the 2010 Water Action Plan

3. District-by-District Rate Setting • Currently, revenue requirements and rates are set and approved on a district-by-district basis. • Many large water utilities have multiple districts. • Individual districts within multi-district utilities have unique revenue requirements and tariffs. • Some even have distinctly different rated within an individual district • Factors than impact cost include infrastructure, geography, topography, and hydrology. • Differs from Energy utilities, which set rates on a system wide basis.

4. High Cost Areas • District-by-district rate setting can result in: • Large rate disparities between customers of the same utility; • Create high cost areas that are unaffordable to many customers; • Create rateshock where the price increases by a large amount. • In the past, the Commission has implicitly subsidized customers in higher cost areas. • Subsidized by keeping their rates low while raising the rates to customers in lower cost areas. • 1999 - Golden State Water Company consolidation of eight districts in Region III. Transition to single ratemaking area phased-in by freezing high cost area rates until remaining region reach level of frozen district rates. • 2010 - California Water Service Company consolidation of Mid-Peninsula and South San Francisco Districts. • 2005 –District rate consolidation guidelines described in D. 05-09-004. • This practice called “regionalization”, “consolidation” of rates, or “postage stamp rates”/ • May be done for large multi-district water companies where there are large number of customers over which costs can be spread.

5. Multi-District Water Utilities

6. OIR to ConsiderSubsidizing High Cost Areas To advance its sixth objective of “setting rates that balance investment, conservation, and affordability”, the 2010 Water Action Plan listed actions items to consider, including: • Development of policies to subsidize high cost areas. To do so, the OIR will consider: • A “High Cost” fund mechanism, • CPUC used similar approach for telecommunications ratepayers via the so-called High Cost Fund telecommunications. • Consolidation of districts and rates within the multi-district water utilities. • D.05-09-004 set forth a set of district rate consolidation guidelines that had been developed by in 1992 by DRA and the large water utilities. • OIR will consider modifying the 1992 guidelines or establish new ones. *Proceeding will not adopt utility-specific “High-Cost” funds or order any water district consolidations. Mechanisms, if any are adopted, will be requested in each Utilities’ GRC.*

7. OIR will consider effects on Low-Income Customers • Seeks input from parties on whether the current water low-income assistance and rate support funds offered: • are adequate to address ratepayer needs in general; • whether these current mechanisms achieve an appropriate balance between utility investments, conservation and affordability of rates.

8. Rulemaking Timeline • November 18, 2011, Rulemaking opened. Assigned to Commissioner Sandoval and ALJ Walwyn. • November 22, 2011, Motion for Reassignment filed. • December 2, 2011, Ruling reassigning Rulemaking to ALJ Weatherford issued.

9. Energy and Water Utility Low-Income Data Sharing Plan - Update

10. Low-Income Data-Sharing • November 10, 2011 – Data Sharing Plans submitted to DWA. • First data sharing event was scheduled for January 2012. • December 21, 2011 Water Utilities filed a request for extension to comply with the data-sharing implementation timeline in decision 11-05-020. • Water and energy utilities have not been able to agree on the level of cyber security protocols necessary to implement data sharing. • Water Utilities requested a 90-day extension to comply. • December 23, 2011, CPUC’s Executive Director granted a 60-day extension to comply.