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Unfortunately, all we know about this story is what we read in Saturday’s Herald, so here is a link to that story  for those who missed it. In a nutshell, the California Public Utilities Commission says Cal Am knew many households are claiming more residents than they actual have, essentially providing them with a discount, but the company did nothing about it.

UPDATE:

BELOW YOU’LL FIND A DISCUSSION OF THE RESIDENTIAL ALLOTMENT ISSUE FROM THE PUC ADMINISTRATIVE LAW JUDGE’S PROPOSED DECISION. CAL AM SAYS IT DIDN’T HAVE THE ABILITY TO CHECK TO SEE IF CUSTOMERS WERE ACCURATELY REPORTING THE HOUSEHOLD SIZE AND THAT IT TRUSTS ITS CUSTOMERS. THE JUDGE WRITES, “We agree that applicant should use the honor system and trust its customers. We also think a responsible utility trusts but verifies.:

 

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Applicant describes the residential allotment system in the last 15 years as having four defining features: (1) reliance on self-reported information, (2) no independent verification by Cal-Am, (3) no authority for Cal-Am to compel information from its customers, and (4) authority for enforcement of penalties with respect to misreporting being solely with the District. (Exhibit 13

78 See June 17, 2016 Motion for Adoption of Settlement Agreement, Exhibit 1, Appendix E, Attachment 1 (2016 Monterey Peninsula Water Conservation and Rationing Plan at
Rule 165.E.5).

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A.15-07-019 ALJ/GW2/jt2/lil PROPOSED DECISION

(Stephenson) at 18-19; also July 13, 2016 Reply Comments at 7.) We briefly examine these features and applicant’s responsibilities. We conclude that the allotment system is clearly vulnerable to abuse. It is also clear that applicant failed to audit customer surveys or take appropriate actions to ensure that allotments are accurate.

Applicant must at all times reasonably administer its tariffs. It is probable that applicant failed to do so by failing to audit customer allotments or take other appropriate actions to ensure the accuracy of allotments. We keep this proceeding open for the assigned Commissioner and Judge to examine whether or not applicant should be penalized for failure to reasonably administer its tariffs and, if so, to recommend a penalty.

9.1. Excess Allotments

Applicant states that with the current rate design (including self-reporting) “it becomes obvious that some customers are allocated more water at lower rates than intended under the rate design.” (Exhibit 1 (Sabolsice) at 19.) In support of its changes to Rule/Schedule 14.1.1, applicant says water rations ”are currently based on customer survey data that is not accurate.” (Exhibit 1 (Sabolsice) at 22.) Applicant reports that:

Data shows that the number of residents per household has likely been significantly over-reported, thus increasing the allotment at each tier and improperly reducing the water bill for those over-reported households. Assigning allotments using the survey data has therefore unfairly assigned too much water to some residential properties and reduced the amount of water available to others in the community. (Exhibit 1 (Sabolsice) at 23.)

Applicant knew there were problems.

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A.15-07-019 ALJ/GW2/jt2/lil PROPOSED DECISION 9.2. Reasonable Administration of its Tariffs

Applicant says it “has no means to investigate the reporting of allotment data.” (Exhibit 12 (Sabolsice) at 8.) Applicant is incorrect. Applicant has a duty to:

… take responsible efforts to identify mischaracterizations in its documentation for number of people, lot size and large animals. In part, this will be accomplished through an annual survey… (D.09-07-021, Appendix A, Section IV.F.)

That is, applicant must take responsible efforts to ensure the accurate administration of its allotment system, and those efforts are not limited to an annual survey. We are simply not persuaded when applicant disavows any responsibility to verify allotments.

Applicant tries to shift the responsibility to ORA, claiming that ORA repeatedly supported the allotment system, failed to suggest changes (if ORA had any concerns), and ORA’s current concern in combination with a recommended $17.4 million disallowance is opportunistic. (Exhibit 13 (Stephenson) at 18-19.) We disagree. Applicant has the affirmative duty at all times to reasonably and responsibly administer its tariffs no matter what ORA or others may think or do. If ORA believed applicant was reasonably and responsibly administering its tariffs, there would be no reason for ORA to withdraw its support of the system or suggest changes. Applicant has the primary duty to administer its tariffs and, when a change is needed, to present compelling evidence in support of that change.79

79 In 2005, applicant proposed eliminating the residential per capita allotment after the first block but failed to carry its burden of proof in support of its proposal. (D.06-11-050.) This shows applicant knew at least as far back as 2005 of problems with the allotment system.

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A.15-07-019 ALJ/GW2/jt2/lil PROPOSED DECISION

Applicant tries to shift the responsibility to the District. Applicant says the District “has retained the sole authority to require verification…” (Exhibit 13 (Stephenson) at 1.) This is not correct. The District has no rule or ordinance that prohibits applicant from verifying allotment claims from its residential customers. (RT Vol 4 at 561.)

Applicant says it has no enforcement authority, and the District is “the local ’water cop’ with the authority to cite and fine violators.” (Exhibit 13 (Stephenson) at 25.) Applicant understates its responsibility and overstates the Dictrict’s role. There is no prohibition against applicant partnering with District to cite and enforce. Applicant cannot disavow any responsibility by seeking to place the duty solely on the District.

Applicant says it does not and cannot verify the number of residents per household because its tariff (Schedule MO-1) does not include any provision allowing Cal-Am to seek verification. (Exhibit 13 (Stephenson) at 21-22.) Applicant has it backwards. The tariff does not prohibit verification, and applicant has an affirmative duty at all times to reasonably administer its tariffs.

Applicant claims it “has no means to investigate the reporting of allotment data.” (Exhibit 12 (Sabolsice) at 8.) We are not convinced. Applicant testifies that it provided summaries of allotment information to the District and specifically identified customers reporting more than eight residents so that the District could research the reported number. (Exhibit 12 (Sabolsice) at 8.) Applicant presents no evidence that it followed-up with the District. Applicant presents no evidence that it asked District to verify customers reporting less than eight residents per household. Applicant could partner with the District to pursue verification for residential customers, but presents no evidence it reasonably did so.

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A.15-07-019 ALJ/GW2/jt2/lil PROPOSED DECISION

In fact, applicant could itself audit residential customers, but failed to do so. Applicant says it does not have access to the number of dependents reported to the federal Internal Revenue Service, or tax forms in general. It says it cannot obtain school records to determine the number of children living in a home. It does not review local newspaper death notices to reduce allotments. It cannot obtain hospital birth records or adoption paperwork. It does not ask for social security numbers. Applicant says it would be difficult to challenge a customer’s reported survey information without surveillance, and surveillance by a regulated utility would be improper. (Exhibit 12 (Sabolsice) at 7-9.)

We agree that applicant’s ability to obtain corroborating information may be limited, but applicant could at least select a random sample of residential customers to verify the annual survey information, or select a sample of those customers with potentially questionable allotments. Applicant could ask the customer to verify the information with whatever documentation the customer wishes to use (e.g., tax forms, school records, Department of Motor Vehicle information), but not require any specific type of document. Failure to provide adequate information in the judgement of applicant could result in the customer getting the minimal allotment (e.g., one person, no large animals, no outdoor landscaping).80 Whether or not all contacted customers are cooperative,

80 There is adequate due process with this approach. For example, applicant would have its own internal review and appeal process for customers who feel the minimal allotment was incorrect. After using the applicant’s appeal process, a dissatisfied customer could contact the Commission’s Consumer Affairs Branch (CAB) for assistance, if needed. Most inquiries to CAB are resolved by telephone. If necessary, the customer could also file an expedited or regular formal complaint. (See Rules 4.1 to 4.5 of the Commission’s Rules of Practice and Procedure.)

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A.15-07-019 ALJ/GW2/jt2/lil PROPOSED DECISION

applicant could make the initial inquiry, and refer those customers with questionable responses to District for further examination and enforcement.81

Applicant partnered with District to audit a sample of non-residential customers. District audited indoor fixtures, and applicant audited outdoor usage. The audit identified 139 non-residential customers to be noncompliant with their assigned rate category and the customers were given 30 days to correct deficiencies or be moved to a different rate division. (Exhibit 12 (Sabolsice)
at 3-4.) There is no compelling evidence that applicant could not do this in partnership with District for its residential customers, or do so on its own.

Rather, applicant “has utilized the honor system when customers provide survey data or update survey data.” (Exhibit 12 (Sabolsice) at 7.) Applicant says it has been its “policy to trust its customers and use the honor system when recording survey data.” (Id., at 9.) We agree that applicant should use the honor system and trust its customers. We also think a responsible utility trusts but verifies.

9.3. Further Process

Commission approval of a utility’s tariffs includes the obligation that the utility reasonably administer those tariffs. Failure to comply with any part or provision of any Commission order, decision, decree, rule, direction, demand, or requirement for which a penalty has not otherwise been provided subjects the utility to a penalty of not less than $500 nor more than $50,000 for each offense.

81 Misreporting survey information, for example, is a misdemeanor punishable as an infraction pursuant to Section 256 of the Monterey Peninsula Water Management District Law, Statutes 1981, Chapter 986. (Exhibit 13 (Stephenson) at 24.)

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A.15-07-019 ALJ/GW2/jt2/lil PROPOSED DECISION

In the case of a continuing violation, each day’s continuance is a separate and distinct offense. (Public Utilities Code Sections 2107 and 2108.)

We keep this proceeding open for the assigned Commissioner and Judge to explore whether or not applicant should be penalized for failure to reasonably administer its tariffs and, if so, to recommend a penalty. The allotment system has been in place for 15 years. The examination must consider the duration of the offense, if any, and the appropriate fine.

We take very seriously the integrity of the regulatory process, including applicant accurately and reasonably administering and enforcing its tariffs. We are very concerned with inequities between customers that resulted from applicant failing to reasonably administer and enforce its residential allotment system and permitting invalid allotments. Customers who experienced the inequity would not only blame applicant but also the Commission, thereby challenging not only the trustworthiness of the regulatory process but government itself.

We recently found applicant in violation of our rules and applied a fine of $15,000 per violation for 58 violations. (D.15-04-008 and D.16-01-025.) We took many factors into account including: the severity of the offense, the conduct of the utility, the financial resources of the utility, the totality of the circumstances, and the role of precedent. We also considered the sophistication, experience and size of the utility; the number of victims and economic benefit received from the unlawful acts; and the continuing nature of the offense. If, in the further proceeding, applicant is found in violation of our requirements, we will take these, along with any other reasonable, factors into account.

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{ 25 comments… add one }
  • Helga Fellay April 8, 2017, 11:22 am

    Please correct me if I am wrong, but this may mean that we, the rate-payers, may end up having to pay between $3.1 and $310 million for CalAm’s laziness and sloppy bookkeeping. As the shareholders of this corporation seem to be immune from paying for the corporation’s mistakes and mismanagement, because the PUC allows it to collect the resulting monetary damages from its customers instead, I imagine it will be no different this time. Could we at least demand that CalAm hold only those households which are guilty of deception as to their household size, accountable, instead of all of us who were honest in reporting?

    • L. Parrish April 8, 2017, 7:41 pm

      Cal-Am would pay the fine, not the ratepayers. The money would either go towards customer rebates, or into the state general fund.

  • Luana Conley April 8, 2017, 11:35 am

    Agreed, Helga, except in the face of near criminal CalAm irresponsibility, fudging the numbers, outright fraud, and placing our river in the “most endangered” category, wouldn’t you consider anyone bold enough to get an edge on corporate thieves a hero? Viva el Robin Hood!

    • Helga Fellay April 8, 2017, 12:08 pm

      where is Robin when we need him most?

  • Gerry Mack April 8, 2017, 11:39 am

    Regarding the potential penalty of between $3.1 million and $310 million, WHO gets the moolah?

    Shouldn’t CalAm be required to credit the penalty-amount to the future accounts of those of us who correctly reported number of occupants?

  • Jean April 8, 2017, 11:48 am

    If the CPUC allows Cal-Am to pass the fine ($3.1-310 million; let’s compromise on $150 million) to its Ratepayers, it’s not a penalty at all. Just extortion on behalf of the State’s General Fund.
    I would like the CPUC to demonstrate some proportionality: whatever fine / penalty the CPUC orders Cal-Am to pay, I would like to see the same percentage of $150 million applied to Cal-Am’s request for its “costs” like the pipeline and “lost revenue”.

  • Patty Cramer April 8, 2017, 11:48 am

    It wouldn’t surprise me if they tried to steal Marina’s water. We contributed to their cause, I believe when we get not one drop of water from them in Marina. Water is the new oil, pretty soon you won’t be able to take a shower!!

  • John Dalessio April 8, 2017, 1:00 pm

    Next time, let’s win the vote to create a public water distributor. We can do this, if we all get active. George, I think your foot troops are ready.

  • Richard Jordan April 8, 2017, 1:07 pm

    I thought it was decided to give cal am customers a 500K rebate…

    • Royal Calkins April 8, 2017, 1:18 pm

      Richard: That seems to be the leading proposal at the moment

  • george Riley April 8, 2017, 1:33 pm

    There’s likely to be some offset to benefit ratepayers. It is highly unlikely it will go to the State general fund. The amount is critical, to be a slap on the wrist ($500,000), or seriously more ($3 to $300 million).
    In a Jekyll and Hyde decision, the CPUC a) approved $39 million to Cal Am for water it did not deliver because customers conserved, and b) ruled that Cal Am mismanaged its allotment system and is subject to a fine. The action at the CPUC is set for late next week, April 13 & 14. Public Water Now will participate, along with others.

  • Jean April 8, 2017, 1:52 pm

    Richard,

    A measly half million?

  • Ron Weitzman April 8, 2017, 2:13 pm

    The $500,000 proposal to lighten our monthly bills came from Cal Am, supported by the water management district, to buy off ratepayers so Cal Cam could avoid the larger fine paid to the state in an amount between some $3 million and $300 million. If we really want to buy Cal Am, then we should be for the larger fine to reduce the value of the company when the sale occurs. The fine is to come from shareholders, not ratepayers. It would be a company liability, as the San Clemente Dam was supposed to be before the CPUC turned its demolishment into a company asset. Cal Am is in business to make money. That is no crime. The CPUC is where the criminal behavior occurs every time it authorizes Cal Am’s monopolistic aggrandizement at ratepayer expense. We (a public agency or JPA) need to buy Cal Am to get the CPUC off our backs.

    • Richard Jordan April 8, 2017, 3:23 pm

      Ron, I agree!

    • Dan Turner April 8, 2017, 5:59 pm

      If CalAm gets fined at all, it will be for the minimum amount, $3million. If the PUC accepts the money back deal that CalAm came up with instead of the fine, they may raise the amount of $ from $500,000 to $1million to make it appear as if they really socked it to CalAm.
      Remember, the PUC looks upon CalAm as its constituent, not us. The PUC does not believe that its responsibility is to look out for our best interests. It believes that its responsibility is to make sure that CalAm, and other utilities, are financially healthy so that they will be able to provide the service – gas, electricity, water – for which they have been given responsibility as a regulated monopoly. Looking out for us and preventing the regulated utility corps from abusing us (or fining those corps so much that they’d never try something like that again) is just not something that the PUC thinks is its job. Add regulatory capture to that – where the PUC commissioners know they will be replaced by the Gov before you can say, “Raise my rates” if they ever tried to actually protect us and/or do anything that would adversely affect the utility corps’ profits – and you have a hopeless situation. Our only hope is to get rid of CalAm and establish a public water agency w/an elected Board of Directors.

  • Alex April 8, 2017, 3:48 pm

    Shouldn’t the people who lied be accountable on some level?

    • Dan Turner April 8, 2017, 5:45 pm

      Yes. They should have their tongues cut out or their hand cut off because they are the real culprits here, not CalAm.

  • Karl Pallastrini April 8, 2017, 7:50 pm

    I think Dan’s summary of the PUC position on our water issues is right on. The PUC wants water delivered to the rate payers. That is their only concern. They are not a watch dog for improprieties, nor should they be. That is the job of the electorate….meaning us.

  • L. Parrish April 8, 2017, 7:58 pm

    Cal-Am used their own data that claimed that there were 125,000 customers in the district, and only 100,000 people living there – according to census data. Obviously, the bigger the disparity, the better for Cal-Am. But there is no proof that Cal-am numbers are accurate or that the population numbers Cal-Am uses are accurate either. They use 2010 census data that was not up to date, and the census does NOT include a lot of folks that are most certainly ratepayers, such as undocumented people, many college students, people with second homes who are enumerated (counted) at their permanent residence and others. And a certain number of residents move every year, which also would change the numbers. And while Cal-Am claims they were cheated by ratepayers, they never actually did the work to verify their claims. All they have is some anecdotal data from a few customers and the highly unreliable and inaccurate (for this purpose) census data. The simple truth is, no one knows either the exact number of ratepayers or the exact population of ratepayers in the district. And Cal-Am never did the work to verify either.
    The question is, do you believe that Cal-Am would have possibly used inflated customer numbers and understated the population numbers? Gee, I wonder………………..

  • david fairhurst April 9, 2017, 10:21 am

    You have to love a one party (Democrat) controlled State and those it appoints to “watch over us” like the PUC. This month’s surprise, thank you PUC, is more penalties, fees, costs and fines for conservation by the Cal-Am consumer (what the hell are the new “pre-2015 & current 2015 WRAM surcharges? water rates astronomical monetary / water rapists add misery)
    My actual water use for last month, in a household that ranges from 3 to 7 people (and what does it really matter how many people are in a “household”? other than perhaps the “redistribution” of water wealth) was 972 gallons or $7.06 in actual water costs, but wait there are now 12 additional surcharges, (last year there were “only” 8) and so from $7.06 to $40.81 that is about 480% in Cal am and State “surcharges” alone. Thank you PUC for “watching out” and “protecting” me from excessive costs. Thank you State of California for “rewarding” me for my conservation efforts, for my investment in an attractive yard that uses no Cal Am water, for low flow everything, for living with a urine filled toliet until taking a “CAL-AM” and for only taking a fanatical less than 2 minutes showers, and even then not every day. It isn’t just Cal-Am that is screwing us it is the very people that supposedly work for the “people” in the government that permit/encourage them to do so.

  • Dan Turner April 9, 2017, 11:10 am

    Yes, Davey, sounds as if you’ve discovered the wonders (and results) of our one-dollar-one-vote (thank you Citizens United and the Supremes) legalized system of bribery that we call “campaign contributions”. It leads to the gov & the lege looking out for the best interests of the big corps (instead of us) and, also, to “regulatory capture” (see above).

    • david fairhurst April 9, 2017, 1:25 pm

      Yes Danny Boy, I hate it when I agree with you, and I do on this one.
      But it is more than just “campaign contributions” that is the problem with our current “overlords”. There is a separation of ethics by those in Government and those they purport to serve. The lack of responsibility for doing a poor job in government contributes as well. If government (and Cal-Am) income is short from poor management they just take more from the people they pretend they serve and then enrich themselves even more so for doing a bad job. If you or I spend more than we have, we suffer, go bankrupt and lose everything.

  • Stephen Schweitzer April 10, 2017, 9:34 am

    This is a primary example why Monterey County should have taken control over our water service.
    A public utility should be just that, owned by the public it serves.

  • Karl Pallastrini April 11, 2017, 8:01 am

    Larry’s comments about the factors involved in determining the actual number of users in a household or rental raises some questions. Given the numerous variables stated, how would Cal Am or anyone else be able to determine a reasonable number of people living in the district? People lie about the number of people living their households because Cal Am spins the numbers to their advantage at every turn in the road. One good turn deserves another. Using a similar metaphor in regards to our efforts to conserve water during the draught…no good deed goes unpunished.

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