BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1157 - Canciamilla Hearing Date:
July 8, 2003 A
As Amended: June 30, 2003 FISCAL B
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DESCRIPTION
Current law requires all utility rates to be just and
reasonable.
Current law , effective this year, requires the California Public
Utilities Commission (CPUC) to issue final decisions for large
water corporation rate cases on a timely basis, as defined. If
the CPUC fails to produce a timely decision, the water
corporation may apply for interim rates which are subject to
refund.
This bill applies the requirement for timely decisions and the
authority to apply for interim rates to large water corporation
rate cases which were filed prior to the passage of the
above-referenced law and declares this provision is declaratory
of existing law.
This bill extends to gas corporations serving less than 250,000
connections the same authority to apply for interim rates.
BACKGROUND
Last year, the Legislature passed AB 2838 (Canciamilla), Chapter
1147, Statutes of 2002, dealing with how the CPUC processes
water rate cases. AB 2838 made four significant changes to the
law:
(1) Rate cases for large water companies had to be decided by
the CPUC so the new rates could be effective during the
beginning of the timeframe being considered by the commission
(e.g. the start of the test year). If that CPUC decision is
delayed, the water company was permitted to ask for, and
receive, interim rates which would be trued up once final rates
were decided. The permissible interim rate was equal to the
last CPUC-approved rate, as adjusted by inflation.
(2) The CPUC was required to establish a schedule to ensure
that each large water corporation will have its rates reviewed
every three years.
(3) The CPUC received an appropriation of $445,000 to ensure it
had sufficient staff to perform these functions. That
appropriation was reduced to $222,500 by the Governor.
(4) The CPUC was told to revise its procedures for considering
large water company rate cases so those cases would be decided
by the start of the test year.
That bill also specifically said its provisions were not to be
precedential for any other utility.
COMMENTS
1.Retroactive Application . The vast majority of the laws
enacted by the Legislature and the Governor only apply to
events that occur after the effective date of the law, unless
the law itself specifically states otherwise. This bill
states it "does not constitute a change in, but is declaratory
of, the intent of the Legislature in adding this section by
enacting" AB 2838 of 2002. The effect of this language is to
apply AB 2838 retroactively to every large water company rate
case pending at the CPUC.
AB 2838 didn't provide any statement or indication that it was
intended to be applied retroactively to permit water companies
with existing rate cases to begin charging interim rates. In
fact, the bill's uncodified findings seem to support the
opposite notion, stating:
(c) Not later than December 31, 2003, the commission
should review and revise, as appropriate, the rate
case plan for water corporations adopted by Decision
No. 90-08-045 to ensure its consistency with relevant
statutes and commission practice in addressing rate
applications by water corporations.
(d) Whenever a water corporation files an application
for a rate change pursuant to the rate case plan for
water corporations, the commission should render a
decision consistent with the schedule established in
the plan.
It's difficult to see how AB 2838 could be read to apply
retroactively, given that it directs the CPUC to review and
revise its rate case plan by December 31, 2003, and to use
that plan when rendering decisions on rate change applications
filed after that date.
2.Is Retroactive Application A Good Idea? Water corporations
are unique in that only they have the statutory authority to
receive (temporary) rate increases without the CPUC first
finding those rates would be just and reasonable. No other
regulated energy or telecommunications company has such
authority.
The main thrust of AB 2838 was to force the CPUC to act in a
more timely fashion on future rate cases, knowing if it
didn't, the water utility would be able to raise its rates on
an interim basis until the CPUC finished its work. Applying
the bill to existing rate cases would arguably be unfair to
ratepayers since - using an extreme example - requiring the
CPUC to meet a deadline that it's already missed is an
impossible feat to accomplish.
3.Awarding Interim Rate Increases To Natural Gas Companies .
This bill takes the concept created for water companies in AB
2838 and applies it to natural gas corporations with less than
250,000 service connections. Furthermore, the bill
specifically states it applies to every pending general rate
case without regard to when the application was filed.
It appears this provision would allow five small gas
corporations to increase their rates by an interim amount
until their rate hike request is finalized.
The largest of these, Southwest Gas, is in the middle of a
rate case proceeding and has complained the CPUC won't decide
the case until 18 months after the case was filed. (The last
Southwest Gas rate case was eight years ago). This bill
probably won't effect the current Southwest case, because the
effective date of this bill should be well after the currently
scheduled decision date.
Southwest, which serves Truckee and the High Desert in
Southern California, currently benefits from a pass-through
mechanism for the cost of the gas, which makes up more than
half of the company's expenses. As gas prices rise and fall,
Southwest's rates automatically adjust thereby insulating the
company from gas price risks. Because of this regulatory
feature, the financial consequence of any delay in processing
a rate case is minimal.
The bill may not affect the four other small gas corporations,
because they are so small they are permitted to take advantage
of an expedited regulatory process.
4.Related Legislation . AB 1735 (Utilities and Commerce
Committee) codifies an 18 month processing deadline for rate
cases. That bill is pending before this committee.
ASSEMBLY VOTES
Assembly Floor (73-0)
Assembly Utilities and Commerce Committee
(13-0)
POSITIONS
Sponsor:
California Water Association
Support:
Southwest Gas Corporation
Oppose:
None on file
Randy Chinn
AB 1157 Analysis
Hearing Date: July 8, 2003