Background
In Decision (D.) 09-07-021, the Commission authorized California-American Water Company (Cal-Am) to increase water rates in its Monterey district by over 40% for the three-year rate case cycle. In that Decision, the Commission also considered the user fee that Cal-Am had been collecting on behalf of the Monterey Peninsula Water Management District (Management District). The user fee was set at 8.325% of all meter and water charges billed by Cal-Am in the Monterey district.1
The Commission began its analysis by noting that the substantial rate increase in Cal-Am's Monterey District imposed "significant financial burdens on residential and business customers" and required that all "proposed expenditures be demonstrably necessary for reliable service and provide value to customers." With this context of closely scrutinizing increased customer charges, the Commission expressed concern that "Cal-Am's customers may be paying user fees to the Management District for projects that may not be necessary or cost effectively performed by the Management District." The Commission noted that the "Management District has a variety of funding mechanisms at its disposal over which this Commission has no jurisdiction," specifically:
The Management District is authorized to issue bonds, assess charges for groundwater enhancement facilities, levy assessments on real property and improvements, and fix, revise, and collect rates and charges for the services, facilities, or water furnished by it. For general administrative costs and expenses, as well programs of general benefit, the Management District is authorized to levy a second property tax of up to $0.10 per $100 in assessed value.2
Turning its attention to the Management District's user fee, the Commission observed that the "Management District's choice of a percentage assessment, rather than a fixed amount, has the effect of substantially increasing the total amount collected by the Management District for the identified projects as Cal-Am's rates increase." The Commission noted that the user fee generated $1,860,000 in revenue during fiscal year 2006. With approximately $42 million in operating revenues adopted in D.09-07-021 for test year 2009, at the level of 8.325%, the fee would generate about $3,500,000 for the Management District, an 88% increase from 2006.
The Commission next expressed concern with the incomplete explanation offered by the Management District for all components of the user fee. The Commission stated that of the current 8.325% fee, 7.125% is attributed to Carmel River mitigation measures, which was explained, but the Management District offered no explanation for the remaining 1.2% which is for the Aquifer Storage and Recovery project costs.
In light of these concerns with Management District's user fee, the Commission pointed to an alternative approach that Cal-Am and the Management District have previously used to ensure cost-effective coordination on a joint project for water conservation programs. This joint project approach, which included recovery of the Management District's costs from Cal-Am's customers by a surcharge placed on the customers' bills, was approved by the Commission in D.06-11-050.
The Commission concluded its discussion of the Management District's user fee by emphasizing that to the extent Cal-Am and its ratepayers are legally responsible for Carmel River Mitigation or Aquifer Storage Projects, the Commission expected Cal-Am to meet that "responsibility in an efficient and effective manner either by its own actions or as a joint project with the Management District." To achieve this objective, the Commission directed
Cal-Am to (1) meet and confer with the Management District regarding "cost effective and efficient methods for Cal-Am to fully meet any responsibility it may have for the Mitigation Program and the Aquifer Storage and Recovery project" and to particularly discuss the possibility of implementing them as joint projects, and to then (2) file an application setting forth any new method of collecting funds to support Management District program costs properly assignable to
Cal-Am, whether performed by Cal-Am or the Management District. The Commission also authorized Cal-Am to file an Advice Letter for a Memorandum Account to record costs that are Cal-Am's responsibility on an interim basis.
Cal-Am filed Advice Letter No. 785-A that established the Monterey Peninsula Water Management District User Fee Memorandum Account. The Memorandum Account tracks costs for projects which Cal-Am has proper responsibility for and has funded, and that are performed by the Management District. The Memorandum Account was made effective July 20, 2009.
1 The Commission's discussion of the Management District's fee proposal is found at 116 through 123 of mimeo version of D.09-07-021. All quotations in this section are to those pages.
2 D.09-07-021, mimeo at 117, quotations and citations omitted.
