Discussion

In D.04-07-035, we described at length the overusage and overproduction problems CalAm faced during the summer of 2004. Those problems and our approval of conservation measures to address them are summarized above, and we need not repeat the full D.04-07-035 discussion here. Today's application is CalAm's attempt to address the possibility that similar problems could reappear at any time, and to propose in advance a solution that doesn't require the Commission to take action on short notice as it was asked to do in 2004.

If CalAm were to fail to meet SWRCB's water production limits for a water year, it would be in violation of SWRCB Order WR 95-10 and could be assessed substantial fines, perhaps as high as $3 million to $4 million. If fines are assessed, they would be booked in a previously authorized memorandum account, and CalAm would seek Commission authorization to recover them from its Monterey District customers.

We agree with CalAm that the time to devise effective conservation measures and implementation criteria for them is now, not when the situation has grown critical and time to act is short.

CalAm's Proposed Rate Structure

If and when triggered, CalAm's proposed standby conservation rate structure would impose a temporary increase in the upper quantity block rates for all water service connections (Tariff Schedule MO-1) in the affected area.⁴ The increases would expire on November 1, 2005, to be replaced by whatever rates would otherwise have been in effect.⁵ In 2004, those were the winter season rates approved in CalAm's last Monterey District general rate case. The increases CalAm proposes are aimed primarily at decreasing excessive outdoor water usage and water waste. Users of normal amounts of water indoors and those who do not waste water would be largely unaffected.

The specific increases would be:

Rates for the fourth and fifth blocks of the residential, multi-residential and Program for Alternative Rates (a low-income customer rate category) schedules would be doubled;

The second block rate for golf course customers would be triple the first block rate and would apply to usage above their monthly allotments;

The second block rate for public authority customers would be double the first block rate and a limit of 40 ccf (hundred cubic feet) per month per meter would be allowed in the first block;

The single block rate for special use customers would be increased by one-third; and

The second block rate for all other customers would be doubled.

The goal of this rate structure is to increase rates for non-essential uses, primarily excessive outdoor watering, and to the extent possible limit consumption to indoor uses. The upper two rate blocks for residential and multi-residential customers and the second block for commercial customers are designed to cover outdoor watering. The first block for all other customers is set at a level to provide sufficient water for normal needs. All other customers are made up primarily of commercial, public authority, and other outdoor watering entities. The increases in rates for golf courses and public authority customers are based on the fact that that they have control over the water they use, and it is mostly outdoor usage. Most special use customers use water for non-essential and construction purposes.

These changes are identical to those we adopted in D.04-07-035 to promote conservation. The actual rates to which these multiples would be applied would be those in effect at the time the increases are triggered, including any Commission-authorized changes that have taken place up to that time. Under ratemaking provisions already in effect, the increased revenues would flow automatically to CalAm's existing WRAM balancing account and eventually be applied to customers' benefit, as further described below.

These rate changes, combined with enhanced outreach efforts and other factors, were sufficient to reduce customer consumption and bring production from the Carmel River supply system within SWRCB's mandated limitation by the end of the 2004 water year. CalAm believes, and we agree, that the same set of changes would once again be effective if the problem were to reoccur in 2005.

CalAm's Proposed Implementation Criteria

As noted above, CalAm works with 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. Those targets would be the basis for determining whether and when to trigger the proposed standby rates. The standby conservation rate structure would go into effect on five days' notice pursuant to an advice letter filing when one of these criteria is met:

If production from the Carmel River resource system on a year-to-date basis exceeds the three month target by 5% or more at the end of the first quarter (December 31, 2004) of the 2004-2005 water year;

If production from the Carmel River resource system on a year-to-date basis exceeds the monthly targets by 5% or more over the established daily year-to-date limitation in any of the months of January, February or March 2005;⁶

If production from the Carmel River resource system exceeds the year-to-date production targets on a daily basis in any amount for a consecutive seven-day period during the months of April, May or June 2005; or

If production from the Carmel River resource system exceeds the daily year-to-date targets on any single day during the months of July, August or September 2005.

These proposed criteria are based on CalAm's experience during the period of overproduction in mid-2004 and reflect the time remaining at each stage to bring Monterey District's cumulative water production back within the SWRCB-mandated limitation by the end of the water year. We agree that objective triggering criteria are needed, and that those criteria should be progressively tightened during the water year to reflect the time remaining to recover from overproduction at each stage. The criteria CalAm proposes meet those tests, and we believe they would be effective.

Thus, we agree with CalAm as to the need to prepare now, the specific rate structure it proposes, and the implementation criteria. We will approve those aspects of its request.

One other aspect of CalAm's proposal merits mentioning here. If and when these criteria are met and the higher rates triggered, CalAm proposes to implement them by filing an advice letter and making it effective on five days' notice. We understand and agree with the need for prompt implementation. We also know, however, that if the higher rates are to be effective in reducing consumption, customers will have to be made aware long before they receive their first increased bills. CalAm does not state in this application what measures it will take to ensure that happens, beyond a general statement that in July 2004 there was " . . . wide-spread news coverage of A.04-06-020 and exceptional customer outreach by Applicant associated with the water issue . . . ." If these higher rates are triggered again in 2005, we expect CalAm to ensure that all affected water users are made aware early on of the need for extraordinary conservation efforts and the higher charges they will incur if their consumption reaches into the upper rate blocks.

CalAm's Proposed Refund

When the Commission in D.04-07-035 ordered CalAm to impose this same conservation rate structure in July through October 2004, it did so knowing that the resulting increased revenues would flow automatically to CalAm's existing WRAM balancing account and eventually be applied to customers' benefit. CalAm's application provides a preliminary figure for the WRAM balance related directly to its D.04-07-035 conservation rates as of September 30, 2004. Water Division later provided a tentative final figure of $1,957,530. Now that the 2004 water year is over, CalAm seeks authorization to refund those amounts to Monterey customers.

CalAm recommends that one-half of the collections be returned to those customers who paid higher rates due to consuming water in the blocks affected by the 2004 conservation rate structure. The remaining one-half would go to all customers billed under Monterey Tariff Schedule MO-1. An argument could be made that all customers, both high volume users and low volume users, were at risk for sharing the SWRCB fines had conservation efforts not succeeded, so all should receive a share of the collections. But a strong argument could also be made that it was the high block customers who funded most of those collections, and, despite being in the upper blocks, contributed most to the cutbacks that enabled CalAm and the entire community to comply with SWRCB's Order WR 95-10. We agree that the efforts of both groups were vital, and CalAm's proposed method recognizes the efforts of both. We will approve refunds following CalAm's proposed allocation method.

To return the conservation-related collections, CalAm will provide a one-time customer bill credit consisting of: (a) one-half of the total D.04-07-035 WRAM collections distributed to current customers who paid those amounts, to be divided among them in proportion to the amount of the collections each paid; and (b) one-half of the total D.04-07-035 WRAM collections distributed to all current customers based on meter size.⁷ CalAm's figures updated for the tentative final refund amount indicate that the typical 5/8" metered customer will receive about $18.54 for the all-customer refund component (and larger meter size customers proportionately more), and each customer who paid the increased charges would in addition receive a credit of about one-half of the amount of the increase each incurred during the July through October 2004 period.