Description of the Application
On January 5, 2010, Cal-Am filed this application seeking Commission approval of "a program to fund projects currently performed by the District that are properly the Company's responsibility" by authorizing Cal-Am to "collect funds required by the [District] to carry out projects on behalf of the Company and which the Company would otherwise have to carry out."3 The application specified that stated Cal-Am would "collect from the Company's Monterey District customers and remit to the Monterey Peninsula Water Management District the Monterey Peninsula Water Management District User Fee at the rate set by the Monterey Peninsula Water Management District's Board of Directors."4 The application also sought Commission authorization to collect from its Monterey District customers all amounts recorded in its Monterey Peninsula Water Management District Memorandum Account, which it estimates will total over $5 million if the application is pending for 18 months. In support of its application, Cal-Am provided testimony from its Director of Rates and Regulation and its Vice President of Engineering.
In the application, Cal-Am contended that the proposed "percent of revenue" basis for calculating the user fee will not impose "a significant financial burden" on its customers because the Management District adopts it budget in a "transparent public process" and that the California Constitution prohibits the Management District from collecting more than it spends on a project.5 Cal-Am also argued that the Commission should abstain from reviewing the Management District's user fee, as it does with other local government fees and taxes, or should only review it to ensure "that utility customers are not paying for duplicative work" or activities that "run counter to the Commission's comprehensive scheme for regulating utilities."6
In its application, Cal-Am stated that the State Water Resources Control Board has imposed a "contingent obligation" on Cal-Am to implement the Management District's Carmel River Mitigation Program, should the Management District ever cease doing so.7 Cal-Am stated that in its 1995 decision, the Board expressed "accolades" for the Management District's Fisheries Mitigation Program, and the Riparian Vegetation and Associated Wildlife Mitigation Program.
The Management District also supplied supporting testimony for
Cal-Am's application. The testimony of the Management District's General Manager explained the legislative creation of the Management District and its various powers.
The General Manager's testimony also described the 1990 process that produced the Carmel River Mitigation Program. The testimony included the 2007-2008 Annual Report for the Mitigation Program, dated September 2009. This report included the only cost data presented for the Mitigation Program. In the Executive Summary section, the report states that:
"a trend analysis shows that the overall costs remained fairly constant (about $1.3 - $1.7 million) for many years, except for FY 2000, when an additional $981,786 was added to the capital expense program to fund one half of the acquisition cost of the District's new office building, bringing the expenditure total over $2.6 million for that year. More recently, expenditures continue to trend upward: FY 2005-06 expenditures were $3.17 million; and FY 2006-07 were $3.29 million. . . . The Mitigation Program Fund Balance as of June 30, 2008, was $999,898."8
Section XIII of the annual report is entitled "Summary of Costs for the Mitigation Program - July 2007 through June 2008" and consists of one page of text followed by one table showing the "cost breakdown." The table states that: "This report does not include the Rebate Program, salaries for the Conservation Office Staff or the project expenditures for `Ordinance Enforcement' even though they were booked as part of the Mitigation Program."
The table shows seven cost components, broken down into "personnel costs," "operating expenses," "project expenses" and "fixed asset acquisitions." The total expenditure amount shown is $3,671,996, with personnel comprising the largest amount, $1,660,034. The second largest amount shown is just under $1 million for unspecified "project expenses" for "water supply." Setting aside that $1 million expenditure, the most expensive cost component is "administrative" at $689,235. Chapter VI discusses the specific program elements for "water supply" and adopts two specific goals: (1) determine and participate in long-term water supply solutions, which focuses on participation in the various forums for the Coastal Water Project and Community Outreach; and (2) the Aquifer Storage and Reclamation Project, specifically to complete Phase I and continue work on the next Phase.
The testimony of the Management District's Chief Financial Officer explains the history and derivation of the user fee. The Chief Financial Officer stated that the Management District and Cal-Am agreed that the "device of a water user fee was the most equitable" means to fund the District's Mitigation Program, and Cal-Am required that any such revenue collection means "would not put the utility at risk."9 The testimony states that the Management District Board set the current user fee amount of 7.125% for the Mitigation Program in a 1992 Ordinance, and that the Board set the Aquifer Storage Project user fee at an additional 1.2% in 2005 based on the Board's determination that the Aquifer Storage Project would be "funded on a pay-as-you go basis rather than via debt financing."
Although not included in the testimony, the Management District's Ordinance No. 67, adopted December 8, 1992, with a purpose to "increase user fee revenue available for the Five Year Mitigation Program" retains the total 7.125% fee but also includes within that amount 1.11% that was reallocated from conservation programs. The ordinance states that the total 7.125% user fee "shall not be exclusively dedicated to a single activity or program, but instead may be allocated at the discretion of the Board provided that all such expenses shall confer benefit and/or service to existing water users."10
Similarly, the Management District's Ordinance No. 123, adopted September 13, 2005, sets an additional user fee component of 1.2% to fund Aquifer Storage and Recovery Project and related water supply expenses. That ordinance, like the Mitigation Program ordinance, retains the Board's discretion to "allocate" the proceeds from this user fee to any endeavor that "confers benefit and/or service" to Cal-Am customers.11
Cal-Am provided testimony from its engineer and the Management District's engineer showing that the Aquifer Storage and Recovery Project is a joint project between the two entities to store excess winter Carmel River water in the Santa Margarita aquifer for use during the summer. Generally, Cal-Am is providing improvements to its water main distribution system to enable the conveyance of water through its system to wells owned by the Management District for injection into the aquifer and then for the extraction and conveyance of the water back into Cal-Am's system.12
The Management District submitted testimony showing that it owns certain water rights that are essential to the Aquifer Storage and Recovery Project and that it has constructed two wells and related facilities that comprise Phase I of the Aquifer Storage and Recovery Project.13 The testimony also explained that the entire project is operated and managed pursuant to an agreement between Cal-Am and the Management District dated March 28, 2006. The testimony included cost data showing that Phase I testing and construction costs were $4,176,931, exclusive of staff time and permitting costs, with $1,620,300 in costs remaining, and that the projected costs for Phase II are $5,042,400.14 The projected firm yield of Phase I is 920 acre-feet/year, with Phase II estimated to yield an additional 1,000 acre-feet/year.15
With approximately $42 million in operating revenues adopted in
D.09-07-021 for test year 2009, at the requested level of 1.2%, the Aquifer Storage and Recovery Project component of the user fee would generate about $504,000 per year for the Management District.
Description of the Settlement Agreement
On May 18, 2010, Cal-Am, the Management District and the Division of Ratepayer Advocates filed their joint motion to approve settlement agreement. The settlement agreement stated that the parties agreed that:
1. The Management District's Carmel River Mitigation Program is non-duplicative, and reasonable and prudent.
2. The Management District's Aquifer Storage and Recovery Program is non-duplicative, and reasonable and prudent.
3. The Commission should authorize Cal-Am to collect and remit the user fee to the Management District at the rate set by the Management District.
The settlement agreement also stated that the interest rate to be assessed on the Memorandum Account balance should be 5%. The parties also agreed that the Commission should receive into evidence all testimony that has been served in this matter.
3 Application at 2 - 3.
4 Application at 19.
5 Application at 6.
6 Application at 12.
7 Application at 10.
8 Darby testimony at Exhibit 3, at I - 14.
9 Dickhaut Testimony at 3.
10 Management District Ordinance 67, Section 3.C. (December 8, 1992.)
11 Management District Ordinance 123, Section 2.
12 Testimony of Schubert at 4 - 8.
13 Testimony of Oliver at 4 - 11.
14 Id. at Oliver Exhibits 6, 7, and 11.
15 Id. at 7 and 13.
