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.