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1、NARUCSubcomitteeonAccountingandFinanceSeptember11-14RELATIONSHIPOFREGULATORS/ REGULATEDCOMPANIESTherelationshipbetweenregulatorsandthecompaniestheyregulatecanbefraughtwithperil.When3,000individualssuearegulatedcompanyinmulti-milliondollarlitigationin22casesstate-wide,
2、theattitudeoftheregulatorstodefendthecasesandsupporttheutility,especiallywhentheutilityhascompliedwithallregulations,isaggressiveandsupportive.Thisisespeciallytruewheninsuranceisinvolved.Butwhenthatsameutilitysuesthepollutersdirectly,andlitigationexpensesareextremelyh
3、ighbecauseofscorched-earthtacticsofthepolluters,passingthosecoststotheratepayersbecomesmorecomplex.2TheJourneyBegins…3Thewatercompaniesinvolved(excepttheMunicipals)wereallClassARegulatedUtilitiesgovernedbytheCaliforniaPublicUtilitiesCommission.TheCaliforniaPUCisastate
4、agencyofconstitutionaloriginwithfar-reachingduties,functionsandpowers.(CaliforniaConstitutionArticle12§§1-6).7OnAugust1,1997,SouthernCaliforniaWaterCompanyappliedforaMemorandumAccount(memo)forlitigationexpensesforitsSanGabrielDistrict.ThePublicUtilitiesCommission(“PUC
5、”)grantedtheapplicationonJanuary21,1998.Amemoaccountisanaccountingdevicetotrackunanticipatedsignificantexpenses(usually),toallowforfuturerecoveryinageneralratecase,subjecttoaprudencyshowing.InCalifornia,utilitiesregulatedbythePUCareregardedasaregulatedmonopolies,witha
6、nabilitytorecovertheirexpensesfromtheirratepayers.But,theirrateofreturnisalsoregulated.8PUCResolution4089–Jan.21,1998“SCWChasincurredandexpectstoincursubstantialcostsinthisdefense,whichcostsmayormaynotberecoverablethroughinsurance.”CompanywasplacedonnoticethatthePUCwo
7、uld“carefullyscrutinizetheamountsandtypesofexpensesbookedtothememorandumaccount.”ThePUCalsopointedoutthat“weareparticularlyconcernedwiththepossibilitythatthislawsuitmayendupinasettlementandnotgototrial.Shouldthecommissionallowsettlementcosts(lessanyinsuranceproceeds)i
8、nratestoberecoveredfromitsratepayers?IfSCWCsettles,wouldthatencourageadditionalsuitsyieldingmoresettlements?”9“WeexpectthatS
