BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1364 - Huff Hearing Date:
April 24, 2012 S
As Introduced: February 24, 2012 FISCAL B
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DESCRIPTION
Current law authorizes the California Public Utilities
Commission (CPUC) to regulate and fix the rates of utilities,
including water corporations, and requires water corporations to
make a rate application at least once every three years.
Current law requires a bill insert notice or other mailed
customer notice of any rate change proposal, with certain
exceptions including for rate increases made by Advice Letter
and already noticed and approved in a rate case but implemented
at a later date.
This bill would eliminate this exception to the customer notice
requirement for Advice Letter rate increases for water
corporations only.
Current law authorizes the CPUC and staff at any time to inspect
the accounts, books, papers, and documents of any public
utility.
Current law authorizes the CPUC and staff at any time to inspect
the records of transactions between an electrical, gas, or
telephone corporation and any subsidiary, affiliate, or holding
company on matters that might adversely affect that
corporation's ratepayers.
Current law requires every electrical, gas, and telephone
corporation to submit an annual report to the CPUC on
transactions with any subsidiary, affiliate, or holding company,
requires the CPUC to periodically audit significant
transactions, and authorizes the CPUC to levy a penalty for
imprudent or unreasonable transactions.
This bill would apply these affiliate transaction requirements
to water corporations and authorize the CPUC to use an outside
contractor for auditing these water corporations.
BACKGROUND
Water utility service is a monopoly subject to full rate
regulation by the CPUC. California has 135 water utilities,
generally classified by their number of service connections,
including 10 Class A companies with more than 10,000 service
connections; 6 Class B companies with more than 2,000 service
connections, 22 Class C companies having more than 500 service
connections, and 83 Class D companies with less than 500 service
connections.
Customer Notice of Rate Increases - The standard process for
rate approval is a General Rate Case (GRC), which water
corporations are required to file every three years. Current law
and CPUC rules require utilities to do a bill insert or other
mailed notice to customers of any rate change proposal filed
with the CPUC for approval. The goal is to make customers aware
of potential increases and enable their participation in CPUC
review of the proposed increase and scrutiny of the utility's
expenditures given as justification for the increase.
Exceptions to the customer notice requirement include rate
changes proposed in Advice Letters to implement a rate increase
already approved in a GRC. For example, a GRC may approve
various capital projects and authorize the utility to implement
the rate increase to cover the costs of the project by filing an
Advice Letter after construction is completed.
Affiliate Transactions - Transparency and reporting requirements
related to a regulated utility's transactions with its
affiliates are to ensure that ratepayers are not subsidizing
parts of a company's business not related to the provision of
utility service. Although current law does not list water
corporations among the utilities subject to these requirements,
the CPUC's Decision 10-10-019, adopted in October 2010,
implements substantially the same requirements for Class A and B
water corporations.
COMMENTS
1. Author's Amendments . The author intends to strike two
significant provisions of this bill as follows. Given his
intent, this analysis is based on the bill as he intends to
amend it.
a) Eliminate Section 6 of this bill, page 7,
lines 13 to 38, inclusive, and page 8, lines 1 to 18,
inclusive.
b) Eliminate Section 7 of the bill, page 8, lines
19 to 40, inclusive, page 9, and page 10, lines 1 to
6, inclusive.
1. Author's Purpose . According to the author, water
corporations are subject to less oversight, transparency
and accountability than electric, gas, and telephone
utilities even though water is still a monopoly service
subject to cost of service regulation. The author states
that this bill will eliminate some of the exceptional
treatment given water corporations in CPUC rate proceedings
and increase ratepayer participation in those proceedings.
2. Advice Letters . The California Water Association (CWA),
which represents the state's water utilities, objects to
this bill's requirement for water corporations only of a
customer notice for Advice Letter rate increases that were
already approved in a GRC. The customer notice made at the
time the GRC was filed would have included this increase.
CWA claims that requiring a second notice when a rate
increase is implemented for capital projects approved in
the GRC would be confusing and frustrating to customers who
would have no way of affecting the result. The CPUC also
objects to this requirement as unnecessary and
discriminatory by applying only to water utilities.
The author represents that he has reached agreement with
CWA and the CPUC on amendments to Section 2 of the bill to
address these objections. These amendments eliminate from
the bill the second customer notice requirement with an
Advice Letter for a previously approved rate increase, but
instead require that initial notice to include more detail
about proposed costs and rate impacts in the initial
customer notice. The amendments also provide, for Class A
and Class B water corporations, that the CPUC may require
customer notice at the end of the GRC of the approved rates
and approved capital projects for which rate increases will
subsequently be executed by way of an advice letter.
Based on the author's representations of the parties'
agreement on these amendments, the committee may wish to
consider amending Section 2 of the bill as follows:
SEC. 2. Section 454 of the Public Utilities Code is
amended to read:
454. (a) Except as provided in Section 455, no
public utility shall change any rate or so alter any
classification, contract, practice, or rule as to
result in any new rate, except upon a showing before
the commission and a finding by the commission that
the new rate is justified. Whenever any electrical,
gas, heat, telephone, water, or sewer system
corporation files an application to change any rate,
other than a change reflecting and passing through to
customers only new costs to the corporation which do
not result in changes in revenue allocation, for the
services or commodities furnished by it, the
corporation shall furnish to its customers affected
by the proposed rate change notice of its application
to the commission for approval of the new rate. This
notice requirement does not apply to any rate change
proposed by a corporation pursuant to an advice
letter submitted to the commission in accordance with
commission procedures for this means of submission,
but does apply to a rate increase proposed by a water
corporation in an advice letter. The procedures for
advice letters may include provision for notice to
customers or subscribers on a case-by-case basis, as
determined by the commission. The corporation may
include the notice with the regular bill for charges
transmitted to the customers within 45 days if the
corporation operates on a 30-day billing cycle, or
within 75 days if the corporation operates on a
60-day billing cycle. If more than one application to
change any rate is filed within a single billing
cycle, the corporation may combine the notices into a
single notice if the applications are separately
identified. The notice shall state the amount of the
proposed rate change expressed in both dollar and
percentage terms for the entire rate change as well
as for each customer classification, a brief
statement of the reasons the change is required or
sought, and the mailing, and if available, the e-mail
address of the commission to which any customer
inquiries may be directed regarding how to
participate in, or receive further notices regarding
the date, time, or place of, any hearing on the
application, and the mailing address of the
corporation to which any customer inquiries relative
to the proposed rate change may be directed.
(b ) For water corporations with more than 2,000
service connections, the notice required in (a) shall
include estimated rate impacts on the various
customer classes of the corporation. The commission
may require the corporation to inform customers in a
separate letter or through a bill insert, at the
corporation's discretion, of the outcome of the
general rate case, within 60 days if the corporation
operates on a 30-day billing cycle, or within 90 days
if the corporation operates on a 60-day billing
cycle, of the commission's final decision, including
the approved rates and the approved capital projects
that will subsequently be executed by way of an
advice letter.
(c) The commission may adopt rules it
considers reasonable and proper for each class of
public utility providing for the nature of the
showing required to be made in support of proposed
rate changes, the form and manner of the presentation
of the showing, with or without a hearing, and the
procedure to be followed in the consideration
thereof. Rules applicable to common carriers may
provide for the publication and filing of any
proposed rate change together with a written showing
in support thereof, giving notice of the filing and
showing in support thereof to the public, granting an
opportunity for protests thereto, and to the
consideration of, and action on, the showing and any
protests filed thereto by the commission, with or
without hearing. However, the proposed rate change
does not become effective until it has been approved
by the commission.
(d ) The commission shall permit individual public
utility customers and subscribers affected by a
proposed rate change, and organizations formed to
represent their interests, to testify at any
hearing on the proposed rate change, except that the
presiding officer need not allow repetitive or
irrelevant testimony and may conduct the hearing in
an efficient manner.
3. Affiliate Transactions . This bill would add water
corporations to the list of other utilities that are
subject to the CPUC's affiliate transaction requirements -
making books available for inspection, annual reporting,
being subject to audit and potential penalties. CPUC
regulations make these same requirements applicable to
Class A and Class B water corporations, although water
corporations are not referenced in statute. The author has
expressed an intent that this bill should make explicit
reference to Class A and Class B water corporations as
being subject to the CPUC's affiliate transaction
requirements. Thus, the author and committee may wish to
consider amending sections 1, 3, 4 and 5 of the bill to
refer only to a water corporation that has 2,000 or more
service connections.
4. Affiliate Transaction Audits . The CPUC's existing
affiliate transaction regulations for water corporations
authorize the CPUC to contract with an outside entity to
audit water corporations. This flexibility is authorized
because of the large number of water corporations subject
to audit. The author has expressed an intent to retain
this flexibility. Thus, the author and committee may wish
to consider amending section 4 of the bill to require that
the commission to conduct an audit for specified water
corporations, "or ensure than an independent audit is
conducted."
5. Ratepayer Impact . The additional detail in the original
customer notice, and the potential for the CPUC to require
water corporations to provide customer notice at the end of
a GRC, could increase utility costs that are recovered in
rates.
POSITIONS
Sponsor:
City of Claremont
City of Placentia
Support:
City of Cypress
City of Stanton
Division of Ratepayer Advocates, with exception
Oppose:
California Public Utilities Commission
California Water Association, unless amended
An Individual
Jacqueline Kinney
SB 1364 Analysis
Hearing Date: April 24, 2012