Background

CalAm provides public utility water service to approximately 170,000 customers in various areas in San Diego, Los Angeles, Ventura, San Mateo, Santa Cruz, Sonoma, Sacramento, Placer and Monterey counties.¹ CalAm is a California corporation and a wholly owned subsidiary of American Water Works Company, Inc., which is in turn owned by RWE Aktiengesellschaft, Thames Water Acqua Holdings GmbH.

CalAm's Monterey District provides water service to approximately 39,000 customers on the Monterey Peninsula and vicinity, encompassing the cities of Carmel-by-the-Sea, Pacific Grove, Monterey, Sand City, Del Rey Oaks and part of Seaside, much of the Carmel Valley, the Highway 68 corridor, and several other nearby unincorporated areas.

CalAm supplies about 85% of the Monterey Peninsula's water. It develops its supply from Carmel River surface water and wells in the Carmel Valley, Seaside basin, and along the Highway 68 corridor. It has been apparent for some time that during periods of drought there is not sufficient water to satisfy fully both environmental requirements and unrestrained municipal water demands, but various factors have prevented any permanent solution to date.

In 1995, SWRCB added a major new legal constraint to the Monterey Peninsula's physical water supply limitations. SWRCB, following hearings begun in 1992, acted on complaints alleging that CalAm's Carmel River water use was without valid rights and adversely impacted environmental and public trust values. In Order WR 95-10, it directed CalAm to cut its Carmel River diversions to 14,106 acre-feet annually and implement conservation measures to bring that figure down by 20% more beginning with the 1997 water year. CalAm met the SWRCB-mandated cutback during the first water year ending September 30, 1996 following Order WR 95-10. It exceeded the limit in the second year, however, and the SWRCB levied a $168,000 fine on CalAm for the violation.² CalAm continues to this day to operate Monterey District under the terms of SWRCB Order WR-95-10 as modified by Order WR 98-04. With the aid of Commission-authorized rate structures designed to provide very strong conservation incentives, it has been able to meet SWRCB's limits in every water year after 1997.

CalAm ran into difficulty again in mid-2004. CalAm works with Monterey Peninsula Water Management District (MPWMD) to create quarterly water production budgets and sets monthly targets that, if met, should at the end of the water year bring production within the SWRCB annual limit. Although it had managed to stay within its cumulative water production target through April 2004 for the October 2003 through September 2004 water year, CalAm recognized that May deliveries were consistently exceeding the daily targets due to early, dry and hot weather conditions with no relief in sight. That pattern continued into June, making it highly likely that Carmel River production would exceed the SWRCB limit for the 2004 water year if extraordinary steps were not taken. In mid-June, CalAm filed Application (A.) 04-06-020 seeking authorization to impose a special conservation rate design. In July 2004 we issued D.04-07-035 granting CalAm authority to implement the modified rate design described below. Its efforts were successful, and CalAm did finish the 2004 water year within the SWRCB limit.

Although the Commission was able to act quickly during 2004, issuing D.04-07-035 just 22 days after the application was filed, that authority has now expired and CalAm is concerned that there need to be measures in place to address future threats without relying on urgent Commission action. CalAm is proposing in its current Monterey District general rate case³ a rate design that will include provisions to avoid the need for urgent relief of the type that was authorized in D.04-07-035, but that will only address the issue from 2006 forward. To avoid another urgent request if consumption is excessive in 2005, CalAm seeks advance approval to implement the same rate design as in July 2004 should the need arise. In addition, it seeks authorization to refund to Monterey customers excess WRAM balancing account revenues collected while its conservation rate design was in use during July through October 2004.

CalAm mailed notice of the application to all of its Monterey District customers, and provided copies of the application to potentially interested local, state and federal government entities and others. No protests or responses were received.