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Money greed. Business man holding holding case with dollars tightly isolated on grey wall background. Worship, miser, excessive gain, finance conceptOops, says Cal Am. When we said we needed $40 million more from our Peninsula customers, plus loads of interest, we really meant $50 million, plus loads of interest.

That was the gist of a story in Friday’s Monterey Herald about how Cal Am is amending its request to charge its local customers for the water they didn’t use because they were conserving water, partly because Cal Am hasn’t been able to provide a sustainable supply.

Never mind that Cal Am’s original request was for $40.6 million in reimbursement even though the Public Utilities Commission’s Office of Ratepayer Advocates says the original request actually amounts to $44.2 million. (In the world of utility finance, maybe $3.6 million is a rounding error.)

Never mind that the Office of Ratepayer Advocates, after a lengthy examination, also found that it was Cal Am’s own mistakes and miscalculations that resulted in its failure to collect  at least half the money it is now seeking.

Never mind that the Public Utilities Commission is supposed to keep utility company’s financially healthy but has no obligation to make a tremendously profitable venture even more profitable.

Here’s an earlier Partisan piece that does a pretty fair job of explaining the whole thing.

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Drowning PiggyIt was mostly California American Water’s own fault that it failed to scoop up every dollar it was entitled to collect from Monterey Peninsula customers in recent drought years, according to state consumer protection officials who also found that some customers contributed somewhat to the under-collection by overstating the number of people in their homes.

Under Cal Am’s current rate structure, the per-gallon price of water declines as the number of people in a household increases. For water billing purposes, a state watchdog agency calculated that the number of residents claimed by Peninsula customers is some 15,000 greater than the actual population. The Office of Ratepayer Advocates, an arm of the California Public Utilities Commission, concluded that Cal Am could have and should have spotted the inflated numbers but cannot even reconstruct its own numbers from as recently as 2013.

The Office of Ratepayer Advocates recommends that Cal Am be allowed roughly half the rate increase it is currently seeking but only if it makes several procedural changes and equalizes rates between residential and non-residential customers on the Peninsula.

Cal Am’s  rate application is a complicated affair, seeking several modifications to the way rates are calculated, but the heart of the application is Cal Am’s hope to raise rates about 43 percent for residential customers to make up for some $44.2 million that the company was entitled to but missed out on because of conservation measures. (The company has said publicly that the figure was $40.6 million but state officials say their calculations put the figure at $44.2 million.)

One customer was billed on the basis of having 999 full-time residents in the home while another was recorded as having 900 residents.

Cal Am and water agencies throughout the state are arguing that they have unfairly watched their revenue decline as water use declined. The natural response from customers, of course, is that they should not have to pay for water they didn’t use.

In a deeply detailed report completed this week, the Office of Ratepayer Advocates recommends that Cal Am absorb $17.4 million of the requested $40.6 million “as this portion of the current balance is reasonably attributable to lack of adequate management oversight” over the company’s water allotment system.

Cal Am proposes to collect the $40.6 million over the next 20 years, at 8.4 percent interest. The Office of Ratepayer Advocates recommends instead that Cal Am collect $23 million of that over the next five years with no interest.

Allowing Cal Am to stretch the collections out over 20 years at the stated interest rate would require Monterey district customers to pay roughly $91.3 million in total surcharges, including $47.2 million in interest alone, ORA calculated.

If Cal Am’s request is granted, the Public Utilities Commission would be allowing it to charge interest on an amount that already  includes the company’s guaranteed rate of return. In other words, the company would be calculating the total amount of uncollected revenue, adding its profit margin to that number and adding 8.4 percent interest on top of that, creating a double recovery.

Cal Am may have created the impression that the uncollected revenue is a debt that must be paid back. ORA says that there’s no truth to that — it is simply money over and above the amount of revenue that Cal Am collected during a period of healthy profit-taking.

The ORA report also focuses on discrepancies in Cal Am’s rate structures for residential and non-residential customers. While Cal Am was angling for the business community’s support for its desalination project, it created a rate structure that provides discounts for businesses that claim to be following sound conservation practices, a structure that does not include the type of tiered pricing that punishes residential customers who use large amounts of water.

ORA found that the disparity between residential and non-residential rates is slight at the moment but will grow rapidly when Cal Am starts collecting millions in uncollected revenue from residential customers. For 2014, ORA calculated that residential customers used 65.3 percent of the available water and provided 66.2 percent of Cal Am’s local revenue.

To help cure the looming disparity, ORA proposes to shift about 8 percent of the residential customers’ current burden, about $3 million annually, to Cal Am’s commercial customers.

ORA faulted Cal Am for not maintaining accurate records of household sizes, an important consideration because under the company’s longstanding approach to setting rates, larger households have paid less per gallon of water.

The watchdog agency used a simple approach, comparing Cal Am’s records to census data. The numbers didn’t come close. In 2014, for instance, Cal Am’s records indicated there were 115,148 full-time residents in the core of its Monterey district while the census put the number at 99,396.

(The ORA report mentioned in passing that Cal Am can’t find population data from before 2014 because of a change in its record-keeping system.)

Some of the improperly rewarded discounts are likely to have contributed to the uncollected income that Cal Am seeks to recover in the future, ORA reported.

In some cases, Cal Am calculated the fee structure for homes based on wildly inaccurate numbers. One customer was billed on the basis of having 999 full-time residents in the home while another was recorded as having 900 residents. In four other cases, Cal Am apparently took the homeowners’ words for it and set prices as though more than 50 people lived at each residence. From the report, it appears that those discrepancies were discovered by ORA. ORA also reported that an unusual number of customers reported that their lots had grown significantly, apparently in another effort to receive discounted rates.

“ORA agrees with Cal Am that the current rate design is overly complex, susceptible to abuse and can present challenges for the stable collection of authorized revenues,” the report sayd. The agency said it therefore supports a system with standardized block rates and one that strongly rewards conservation while promoting revenue stability.

Previous Partisan pieces on the rate hike:

Cal Am’s Monterey Peninsula rate hike is so outrageous that even KSBW opposes it

UPDATED: Some of the numbers elude Cal Am officials at PUC hearing on rate increase

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When a state administrative law judge proposed an $870,000 fine against Cal Am for illegally charging its customers for projects that had not been completed, or in some cases not even started, company officials said they were “shocked.”

“It’s not like it was a safety issue or an environmental hazard,” said Cal Am spokesman Kevin Tilden, who apparently doesn’t consider gouging ratepayers to be a serious matter.

Tilden went on to say it was all just a big misunderstanding.

“There was no intent to deceive.”

Which could be true. But if it is, then what Cal Am did to warrant such a fine amounts to severe incompetence or something equally troubling, in the eyes of the state Office of Ratepayer Advocacy. The ORA is the official Public Utilities Commission offshoot that discovered how Cal Am had been collecting large amounts, very possibly in the millions of dollars, by falsely claiming that at least $79 million worth of construction or maintenance projects had been completed.

“Cal Am’s purported interpretation of this (reporting requirement) deviates so far from the plain language of the (PUC rules) as to constitute at least gross negligence,” the ORA wrote in a legal brief last year.

In another brief, the agency was slightly more charitable:

“Whether deliberate or simply a result of abysmal recordkeeping, Cal Am’s woefully inadequate response (to the ORA’s findings) is a breach of duty to this commission but also to its customers who have been billed for projects that have never been constructed.”

In a nutshell, as part of its request for future rate increases, Cal Am told the PUC three years ago that five construction or improvement projects on its books had not been completed. ORA staffers, however, suspicious of that number, took a road trip around the state in search of projects that Cal Am was billing for but that might not exist. They found more than five incomplete projects. More than 10. More than 20. They found 62.

A few of the projects, none major, were in Monterey County. The others stretched from San Diego to Sacramento.

Cal Am pleaded ignorance, confusion or a combination of the two. Some of its top officials testified in a PUC hearing last year that they thought the PUC only wanted to know about projects that Cal Am believed would never be completed. As opposed to projects that simply had not been completed.

The Office of Ratepayer Advocates doesn’t buy it, asserting that even when the discrepancy was discovered, Cal Am made no apparent effort to correct it or delve into the cause.

ORA lawyers also argued that it would not come as a surprise if the company wasn’t handling the rest of its affairs in similar fashion.

The Office of Ratepayer Advocacy was once a division of the Public Utilities Commission but was officially separated into an independent agency in order to protect it from bureaucratic or political interference. ORA lawyers argued in this case that the agency has spent so much time on the unfinished projects matter that it has been diverted from its larger mission of studying the utility’s support for upcoming rate increases.

Because of the complexity of utility accounting and Public Utilities Commission regulations, it is difficult if not impossible to accurately determine how much money Cal Am improperly collected from its customers. The commission’s files do contain enough information, however, to support a guesstimate. By Cal Am’s accounting, customers were being charged for just $3.6 million in incomplete work. By ORA’s accounting, the figure was more like $79 million. If Cal Am collected for the higher amount for just one year, customers could have been overcharged at least several million dollars, according to a PUC staffer who was not authorized to speak publicly.

ORA officials calculated that PUC rules would allow a fine of as much as $35 million, but the agency recommended a figure between $29,000 and $2.9 million.

Without determining whether Cal Am had deliberately or accidentally misled the PUC, Administrative Law Judge W. Anthony Colbert this week recommended an $870,000 fine. He said he wanted to set a figure that would send a message to the company but that would not unduly strain the company’s resources.

Colbert wrote that the PUC rules violated by Cal Am were “clear and direct” and found that the company’s explanation was “unsatisfactory.”

To the disappointment of Cal Am, Colbert also found that the company’s behavior amounted to an obvious violation of the Public Utilities Commission’s cardinal rule, otherwise known as Rule 1.1. It says that anyone who transacts business with the PUC “agrees to comply with the laws of the state … and never to mislead the commission or its staff by an artifice or false statement of fact or law.”

The amount of the fine will be determined at some future meeting of the PUC, a body of five political appointees. Unfortunately, whatever the amount turns out to be, it will go to the state general fund instead of being refunded to Cal Am customers. The only consolation to the ratepayers will be that Cal Am will be ordered not to pass the costs of the fine on to the customers.

Of the 72 unfinished projects that Cal Am should have disclosed, a handful were in Monterey County. None has had a high profile.

One involved the drilling of a well at Seaside Middle School as part of the Monterey Peninsula Water Management District’s aquifer storage and recovery project, at a cost of $496,000. The ORA found that the project was completed but that the funding had come from the water management district.

According to ORA, other projects that should have been reported as incomplete earlier this decade included a $203,000 replacement of a water tank that was instead taken out of commission, a $5.4 million effort to replace water mains in Seaside, construction of a fish passage at Los Padres Dam at a cost of $2.3 million, and replacement of a mainline distribution valve at a cost of $115,000.

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