BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2838| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 2838 Author: Canciamilla (D) Amended: 8/20/02 in Senate Vote: 21 SENATE ENERGY, U.&C. COMMITTEE : 8-0, 6/25/02 AYES: Bowen, Morrow, Alarcon, Battin, Dunn, Murray, Sher, Vasconcellos SENATE APPROPRIATIONS COMMITTEE : 11-0, 8/13/02 AYES: Alpert, Battin, Bowen, Burton, Escutia, Johnson, Karnette, McPherson, Perata, Poochigian, Speier ASSEMBLY FLOOR : 67-0, 5/2/02 (Passed on Consent) - See last page for vote SUBJECT : Water rates SOURCE : California Water Association DIGEST : This bill requires the Public Utilities Commission (PUC) to issue a decision on a water utility companys application for a general rate increase, within a certain time period, as specified. It also requires the PUC to establish a schedule to review the rates of water corporations every three years. ANALYSIS : Current law authorizes the California Public Utilities Commission (CPUC) to regulate the service of investor-owned water utilities. CONTINUED AB 2838 Page 2 This bill requires the CPUC to issue final decisions regarding water utility rate cases so they are effective on the first day of the period for which the rate case was filed. If the CPUC doesn't render a decision in time, then the water corporation may request, and shall be granted, interim rates that may be increased by an amount equal to the rate of inflation as compared to existing rates. These rates would be subject to refund, pending the final decision. This bill requires the CPUC to establish a schedule to review the rates of every water utility every three years. The bill appropriates $445,000 from the Public Utilities Commission Utilities Reimbursement Account in the General Fund to the PUC for the bill's purposes. Background : Investor-owned water utilities provide potable water to 20% of Californians. They differ from their municipal water utility cousins (e.g. East Bay Municipal Utility District, Los Angeles Department of Water and Power) in that they are for-profit private corporations subject to economic regulation by the CPUC. The CPUC categorizes the investor-owned water utilities by size. The largest are the ten Class A water utilities, which serve at least 10,000 customers. This bill is intended to deal only with the Class A utilities. To get a perspective on size, the largest Class A water utility has about $250 million in annual revenues, compared to the largest electric and telecommunications utility, each with about $10 billion in annual revenues. Water utilities are traditional utilities in that they face virtually no competition and deliver an essential service. They are regulated in traditional ways with rates based on the cost of providing the service, plus a fair return on investment. In 1990, the CPUC established a Rate Case Plan for the Class A utilities which established a timeline for the processing of water utility rate cases. These rate cases AB 2838 Page 3 are a detailed showing of the costs and investment necessary to provide adequate water service, as well as a detailed proposal for water rates necessary to recoup the allowable revenues. The rate cases are filed for future years, known as the Test Year. Once the utility has filed its application to increase water rates, the Rate Case Plan provides the CPUC with 214-259 days (depending on the size of the company) to process the case and issue a final decision. That timeframe is designed to encompass the filing of the case by the utility, preparation of a competing case by the CPUC staff, public hearings, testimony and cross examination, preparation of a written draft opinion by the CPUC's administrative law judge, and issuance of a final decision. The water utilities have complained that the CPUC hasn't acted in a timely manner when it comes to rate case decisions. They assert the CPUC routinely takes longer than allowed in the CPUC's Rate Case Plan, often by hundreds of days. The CPUC responds that while recent history bears out that the Class A water utility general rate cases do take much longer than allowed, that delay is often caused by actions of the water utilities themselves and the delay generally hasn't delayed the imposition of the new rates in time for the start of the Test Year. In other words, while the CPUC's recent decisions may not have been timely, the inability to stick to the pre-determined schedule has often been due to the utility and, in any event, has had no effect on the utility's ability to collect money which it is due. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No There is no specific schedule for reviewing water rates under current law. There are 10 large water companies with a total of 64 districts. Over the past four years, the PUC has reviewed an average of about 10 per year, and this bill would require them to review approximately 20 per year, thereby doubling their workload. Increased costs to the PUC are estimated at $445,000 in 2002-03, and $891,000 in 2003-04 and annually thereafter. PURA revenues are derived from an annual fee imposed on public utilities. Therefore, AB 2838 Page 4 any increased costs should be offset by increased fee revenues. SUPPORT : (Verified 8/19/02) California Water Association (source) OPPOSITION : (Verified 8/19/02) California Public Utilities Commission ASSEMBLY FLOOR : AYES: Aanestad, Alquist, Aroner, Bates, Bogh, Calderon, Bill Campbell, John Campbell, Canciamilla, Cardenas, Cardoza, Chan, Chavez, Chu, Cogdill, Corbett, Correa, Cox, Daucher, Diaz, Dickerson, Dutra, Firebaugh, Frommer, Goldberg, Harman, Havice, Hollingsworth, Horton, Jackson, Kehoe, Kelley, Koretz, La Suer, Leach, Leonard, Leslie, Liu, Longville, Lowenthal, Maddox, Maldonado, Matthews, Migden, Mountjoy, Nakano, Nation, Negrete McLeod, Oropeza, Papan, Pescetti, Richman, Salinas, Shelley, Simitian, Steinberg, Strom-Martin, Thomson, Vargas, Washington, Wayne, Wiggins, Wright, Wyland, Wyman, Zettel, Wesson NC:jk 8/20/02 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****