SJWC $8.08 Million Tax Windfall. or "We got it and don't want to share it with those nasty ratepayers!"

To be fair they didn't specifically say "nasty" ratepayers. It's obvious that SJWC feels they've found a legal loophole that will allow them to keep the $8 million and not credit the ratepayers, any of the windfall tax refund and by the way pay SJWC Management  a bonus, paid for by ratepayers, for increasing the value of their shareholder investment. (Please note, I own 10 shares of SJW stock, so I can attend annual meetings.)

 The link below (finally up after being down about 3 days) is again available:

http://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M162/K358/162358073.PDF

My personal view is this is not a case of retroactive rate-making, this is a simple case of greed. SJWC is protected by lots of rules that guarantee them both a profit and a return on shareholder investments. The "system" is and has been very generous, due to previous years of CPUC tendencies to be supportive of all utilities they are supposed to regulate. There seems to be a failing on the part of SJWC and CPUC (Water Division), in this case. SJWC is proactive in requesting action in a timely manner when their "profits" are endangered, but the $8 million tax windfall was apparently not brought to the attention of CPUC, nor did CPUC raise the issue with SJWC, instead SJWC felt that nothing should be paid back to the ratepayers! If in fact the tax action occurred before the next three rate case cycle. SJWC has roughly 225,000 ratepayers, if a simple distribution was 8 million / 225 K = ~$36 credit per ratepayer, a fair pro rata distribution should be based on actual water usage per ratepayer and no credit to WRAP participants who get rates subsidized by full charge ratepayers.

Another point is the SJWC staffing we are already paying for highly paid executives whose objective and mission is to maximize the water rates we pay, this is somewhat obscured by the NTP&S (Non Tariffed Product & Services) for profit business that should be separated from the tariffed (regulated) portion of SJWC business, really hard to do if the folks are part of the SJWC employees our water bills pay for. SJWC requested 33 new staff positions, in the Proposed Decision (PD) 6 positions are recommended.

It's interesting some the other SJWC issues like WRAM that would establish a Water Rate Adjustment Mechanism, to guarantee their profit, independent of how efficient the SJWC is operated. The goal of SJWC is obviously to have ratepayers bear the burden of their potential inefficiency and as much risk and financial burdens, as possible.

While SJWC is at it let's get the ratepayers to pay our Executive and Managers Bonuses! Who does SJWC actually work for? Surprise the shareholders in theory own the company and the management operates to increase the value of the stock and increase the dividends paid to "surprise" shareholders.

CPUC and especially ORA (Office of Ratepayer Advocates) both should work to insure, in the case of SJWC, safe, reliable water service at a fair and reasonable cost to ratepayers. Sometimes the actual mission can be lost in the rhetoric and previously the suspected close relationships, between utilities and regulators.

San Jose Water Company (SJWC) had a meeting regards the PD (Proposed Decision, GRC A-1501002)

I was not really surprised that SJWC had a meeting with CPUC staff, I was pleasantly surprised that the meeting was published in the CPUC website Proceedings. Except today CPUC seems to be having computer problems, it appears their document database has failed. The list of documents, but not the actual documents are available. It seems this happened on this weekend, as I accessed and read the ORA and SJWC documents on Thursday/Friday. I certainly hope this is a computer failure, otherwise it would be a obvious failure to be open and transparent. Raises an interesting question for CPUC to answer, "Did your document database have a failure?".

SJWC sent to CPUC and had published a Notice of an Ex Parte communication. Palle Jensen (SJWC Sr. VP, Regulatory Affairs) pleaded the SJWC case in opposition of several points in the PD (Proposed Decision).

Click here to view original.

May 20, 2016

NOTICE

San Jose Water Company

SUMMARY: On May 17, 2016, Palle Jensen, Senior Vice President of Regulatory Affairs for San Jose Water Company (SJWC), met with Lester Wong, advisor to Cmmr. Randolph, in San Francisco. Also present was Martin Mattes of Nossaman LLP, attorneys for SJWC. Jensen referred to the Proposed Decision (PD) of Administrative Law Judge Tsen, and addressed the PD’s rejection of SJWC’s request for authorization to implement a revenue-decoupling Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA). Jensen and Mattes explained that the Monterey-style WRAM is a rate adjustment mechanism but not a revenue adjustment mechanism and that it provides no protection against revenue loss due to sales lower than the forecast level on which rates were based. Jensen addressed the PD’s disallowance of certain elements of SJWC’s estimate of test year payroll expense. Jensen and Mattes briefly referred to the PD’s rejection of SJWC’s proposal for a Health Care Cost Balancing Account, and noted the continuing volatility of health insurance costs and the inability of SJWC to control those costs. Jensen noted the objections of the Office of Ratepayer Advocates (ORA) to the PD’s rejection of ORA’s proposal to require SJWC to create a memorandum account to record certain income tax benefits in past years under recently promulgated Internal Revenue Service regulations. Jensen explained that ORA’s proposal would entail unlawful retroactive ratemaking.

A close review shows SJWC opposes, the same disputed issues that they have for the past year:

• WRAM decouple revenues and profits, a "guaranteeing" SJWC profits, A great deal for SJWC, not a good deal for ratepayers. I seem to miss the point of improving productivity and efficiency, providing clean, reliable water to ratepayers at competitive rate Oops! that's right they don't have a competitor!
•  The following sounds much better than executive and manager bonuses, paid by the ratepayers, buried in the water rate: " disallowance of certain elements of SJWC’s estimate of test year payroll expense" . Bonuses seem to me to be an incentive for above average performance and the question becomes who benefits? Seems the executives and managers should be compensated in stock and salary by the shareholders who benefit from most of the efforts. An example is the Sr. VP of Regulatory Affairs what is his bonus and salary paying him to do? Lower your rates or increase SJWC profits?
• Then we have the " income tax benefits in past years under recently promulgated Internal Revenue Service regulations" any other way you say it, this is the 8 million dollar windfall. This creates an interesting situation: (1) where did the 8 million dollars come from? Obviously from the ratepayers, (2) sounds like we were overcharged, but who should have reported the windfall?, (3) we already water flows down hill and water rates go up-obvious over simplification, (4) several questions should be asked, if the State and Federal tax authorities give back money why can't SJWC? The next question does SJWC have a better statue of limitations than criminals? They note: "ORA’s proposal would entail unlawful retroactive ratemaking." SJWC seems to be getting a three year or less period during which if they can hide it they seem to think they should be able to keep it?

We seem to have created through the lack of CPUC action in past 30 years, to establish a simple concept that is pervasive, in the water companies (publicly owned-stock) that CPUC' charter is to insure safe, reliable water service at the lowest rate for the ratepayers and to regulate the effective monopolies that the water companies are in reality are operated in a reasonably efficient manner in the best interest of the ratepayers. . 

After many delays SJWC GRC 2016 (General Rate Case ) will go to the CPUC Commission and with several disputed items that San Jose Water Company has not been able to find a compromise with the ORA (Office of Ratepayer Advocates). Below are the list of disagreements 10 months ago, click for the entire attachment.

• Executive and Management bonuses. I have a problem with the SJWC position they represent the interests of their shareholders, not the financial interests of their ratepayers. Why should the ratepayers of SJWC reward the performance of the executives and managers who are in the final analysis represent the financial interests of the stockowners in SJW Corp. Keep in mind SJWC has a Senior VP and a staff to "optimize" the corporation revenues (you may read as "raise our rates" if you choose). (Please note:  I own 10 shares of SJW stock mainly to allow me to attend the annual meetings.)
  
  ORA and the ALJ Tzen Proposed Settlement both appear to have taken positions opposing ratepayers paying for bonuses. Now we see what the Commission approves?
  
• WRAM (Water Rate Adjustment Mechanism) basically separates the profits from the SJWC performance.
  
  ORA and the ALJ Tzen Proposed Settlement both oppose the requirement for providing SJWC with a WRAM.
  
• There's a complex argument going on about the "windfall" of about $8 million dollars that SJWC has gotten as a result changes to the tax laws. The question that SJWC hasn't been willing to compromise on is "who gets the windfall"? Does SJWC get the windfall or does it credited to the ratepayers who actually paid the money originally? SJWC argues that the money should be kept by the corporation, since no one caught the effects on their taxes, or at least said nothing till the "Statue of Limitations was passed-went into the next Rate Case",  and it would be retroactive to before the current General Rate Case........... It appears to me that we paid the money and at a minimum ratepayers should get credits offsetting some of the current drought and other adjustments being applied to our bills from SJWC. It's not very fair to ratepayers to guarantee SJWC profits and also have them take the "tax windfalls" which we actually paid for. This is "not" a crime just an oversight and potentially untimely disclosure, that conveniently is to the detriment of the ratepayer.
  
  The $8 million spread across 250,000 ratepayers bills means that the projected increase over the next year could be reduced from $7.00/month to about $4.50/month. Note: SJWC got to use the money for several years, but let's not be picky about 10% or less............
  
  There is at least hope that moving forward from 2016 the Commission will approve that SJWC and other utilities have the requirement to make losses know to CPUC (they've been very good at this part) and as well SJWC and utilities make "windfall gains" known to CPUC, to allow the ratepayers interests to be protected.
  
  For readers who need bedtime reading, click for the ORA arguments.
• NTP&S (Non-Tariffed Products & Services) this covers the use of SJWC labor hours on things like cell tower rental space and my favorite the Home Emergency Insurance Solutions (aka HEIS) coverage for the water pipe between the SJWC water meter and the external connection to your house. The terms still have been disclosed by SJWC, but it's safe to assume SJWC gets a 10% cut of the monthly premium.
  
  ORA and SJWC apparently reached a non-precedent setting agreement, on the amount of dollar$ during the current rate case. SJWC did a terminator, "ve'll be bachk!". Since there's money involved I'm sure they will raise the issues again.
  
• SJWC requested increase in staffing by roughly 33 positions during the current GRC (2016, 17 18)
  
  ORA opposed the number and it appears the ALJ Tzen shares concerns, the proposal is 6 positions including the three previously added by SJWC.

There are other issues, but these seem to me to be more significant and controversial, at least they were opposed by SJWC. I'll update this when the Commission rules on the GRC A1501002 and we can see if the "Ghost of the Past President lurks in the CPUC chambers".

Please send email,

 make your opinion heard!

 If you are concerned about these issues, send email to CPUC at: District 5 United eForm eMail  Simply click on the "eForm eMail" and you will get a page to fill out the information and specify the reason for your opposition to the currently contested issues and continuing requests to de-couple their revenue from the requirement to do business efficiently and your concern about their lack of openness and transparency. 

Please consider pasting the following, or parts you agree with, when you fill in the eForm or send an email to the CPUC Public Advisor:

"I am concerned about the General Rate Case A1501002 that SJW Corp./SJWC has submitted to CPUC, for approval. I'm concerned about the potential effect this may have on increased future water rates and the continuing practice making access to information by ratepayers difficult. I don't approve ratepayers rates paying bonuses to SJWC Executives who have obligations to the shareholders that approve their pay, which may represent a clear conflict of interest. I also oppose providing a WRAM and separating revenues from expenses and guaranteeing SJWC profits. Reducing SJWC motivation to control expenses."

CPUC Public Advisor public.advisor@cpuc.ca.gov  Reference San Jose Water Company (SJWC) A1508016.The Public Adviser will insure your email will be sent to all the appropriate CPUC staff members and commissioners. 

Other people to drop an email (note) and express your opinion are:

• Scott Herhold, San Jose Mercury News, sherhold@mercurynews.com
• Paul Rodgers, San Jose Mercury News, progers@mercurynews.com
• Julie Putnam, NBC Channel 5, julie.putnam@nbcuni.com