Background

CalAm's Monterey District serves approximately 39,000 customers on the Monterey Peninsula and vicinity, providing 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.¹ 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 June 2004, CalAm filed Application (A.) 04-06-020 seeking authorization to impose a special rate design to reduce consumption during the remainder of the water year. Several respondents to that application recommended the Commission approve CalAm's request, but only with modifications and conditions. One of the Office of Ratepayer Advocates' (ORA) conditions was that CalAm file an application for authority to implement a moratorium on new hookups and expansions. CalAm accepted the respondents' conditions, and in July 2004 we issued Decision (D.) 04-07-035 granting CalAm authority to implement its proposed rate design. In that ex parte order, we withheld judgment as to whether a moratorium would be justified but did order CalAm to file a subsequent application to allow us to consider the matter without delaying CalAm's urgently needed conservation efforts. CalAm filed today's application pursuant to that order.