WEST COVINA, Calif., Dec. 26, 2001 — The California Public Utilities Commission (CPUC) recently approved a resolution that significantly changes its long-standing policies and procedures regarding the ability of the state's water utilities to pass through certain uncontrollable costs to their customers.
Examples of uncontrollable costs include rates for electric power and purchased water. Southwest Water Company is assessing the resolution's potential impact on the revenue, earnings and cash flow of its Southern California water utility, Suburban Water Systems (Suburban).
Under prior CPUC procedures (adopted by Suburban in 1991), Suburban recorded the impact of certain uncontrollable expense changes in a "production cost balancing account" in its income statement, with a corresponding liability or asset on its balance sheet. Amounts in the balancing account would be recovered from or refunded to water customers through future CPUC-authorized rate adjustments.
The newly adopted CPUC resolution eliminates the use of balancing accounts as of December 1, 2001. While it is too early to fully determine the resolution's potential impact, Suburban believes it will be able to recover the amounts that were in its balancing account as of December 1, 2001. However, there can be no assurance of such recovery. Suburban also believes that the CPUC resolution will likely result in greater fluctuation in revenue, earnings and cash flow, beginning in 2002.
Southwest Water Company provides a broad range of services, including water production and distribution, wastewater collection and treatment, public works services and utility submetering. The company owns regulated public utilities and also serves cities, utility districts and private companies under contract. More than 1.5 million people in 29 states from coast to coast depend on Southwest Water for high-quality, reliable service.
