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California American Water:
Monterey District Rate Design - Phase 2

 

 

 Background

On July 14, 2015, Cal Am submitted its  Application to the CPUC requesting to change their rate design, including modifications to their Conservation and Rationing Plan. 

On November 4, 2015, the CPUC issued a Ruling stating that Phase 2 of this proceeding will address:          

  • Water Revenue Adjustment Mechanism (WRAM) surcharges, (WRAM is an accounting mechanism, a method of tracking the difference between the forecasted and actual revenues derived from water sales and recovering the difference through surcharges). 
     
  • Rate design issues, including the elimination of the entire allotment-based system and a reduction of consumption forecasts for 2016 residential use.     
     
  • Implementation of a pilot program which would annually adjust consumption forecasts through an informal proceeding (“annual consumption true-up”).  
      
  • Modifications to its Conservation and Rationing Plan (“Rule 14.1.1”).     

 

 Cal Am proposes to make the following modifications related to Phase 2:   

  • Change the way it recovers the difference between forecasted and actual quantity revenues, from a surcharge based on consumption to a surcharge based on meter size, recovering a proposed $40.6 million in WRAM undercollections over 20 years at a 8.41% interest rate.   
     
     
  • Modify its existing rate design by no longer providing individual customer allotments and by adjusting the sales forecast, decreasing the amount of water currently projected to be used in 2016, as overstated consumption projections lead to revenue shortfalls, later collected through WRAM surcharges which incur interest. 
      
  • Initiate a pilot program for an annual consumption true-up, which would allow the company to change rates via an informal process if the previous year’s consumption varied significantly from previously forecasted consumption.  
      
  • Modify its Conservation and Rationing Plan by consolidating the seven existing stages into four, allowing for quicker escalation of conservation measures to better address shortages in water supply.  

 

Proposed Settlement Agreement

On June 17, 2016, Cal Am and the Monterey Peninsula Water Management District submitted a proposed Settlement Agreement to the CPUC addressing: 

  • Annual Consumption Adjustment Mechanism Pilot Program 
  • Modification of the CPUC's Rules for Water Conservation and Rationing Plans (Rule 14.1.1).
     

ORA did not sign on to this Settlement Agreement. 

 

A CPUC Phase 2 Decision on Cal Am's Monterey Rate Design is expected October, 2016.  

 

 

ORA Position

Based on ORA’s analysis of Cal Am’s proposal, the CPUC should reject Cal Am’s requested consumption true-up pilot program because it would allow customer rate changes with only the limited information and scrutiny.   

ORA recommends that the CPUC should authorize Cal Am to: 

  • Recover a total of $22.1 million in under-collections,  amortized over 5 years without interest.  
    • This is $69.2 million less than Cal Am’s proposal, when the interest accrued through Cal Am’s proposal is taken into consideration.   
     
  • Shift approximately $3 million in cost recovery from residential to non-residential rates to more equitably align cost recovery proportional to consumption.  
     
  • Eliminate the allotment-based rate design because the allotments system is subject to abuse and is inequitable in that it allows for residents to pay different rates for similar consumption.   
     
  • Reduce water consumption forecasts for 2016 residential use because overstated consumption projections lead to revenue shortfalls, later collected through WRAM surcharges which incur interest.    
     
  • Increase the amount of utility fixed costs recovered through meter charges because when a significant amount of revenues is recovered through quantity charges, drastic changes in consumption will have larger effects on Cal Am’s ability to cover its operating costs.  
     
  • Moving a greater amount of rates to monthly meter charges stabilizes recovery, preventing shortfalls from ending up in the WRAM account where they would accrue interest. 

 

See ORA's June 2016 Briefing Document describing its position on Cal Am's inflated WRAM balances.
 

See ORA's:  

In-depth analysis via its February 16, 2016 Testimony on these issues. 

May 27, 2016 Opening Brief. 

June 2, 2016 Reply Brief.
 

 


 
 

Proceeding Docket

See the CPUC's  Proceeding Docket of the record of the case.    

Visit the docket to subscribe to updates in this proceeding.     
 

 

Resources

City of Monterey Letter Supporting ORA's Position