State Appeals Golden State's Water Hike

Lawyers say Public Utilities Commission violated state water law in granting such a large increase

By Daryl Kelley
In a rare move, the state office that protects the public interest in utility cases has appealed a 35 percent water rate hike on Ojai customers enacted in February by the California Public Utilities Commission.
Lawyers for the commission's Division of Ratepayer Advocates appealed the steep rate hike last week and requested a re-hearing on key issues, saying the commission violated state water law in granting such a large increase.
Specifically, Ratepayer Advocates' lawyer Cleveland Lee maintained that the commission's findings in support of the increase “are not supported by substantial evidence” and that the commission “imposed unjust and unreasonable rate burdens in violation of (state law).”
“The commission should grant rehearing to correct the legal errors,” Lee concluded. “The decision lacks specific supportive findings; proceeds in a manner contrary to (law); and is not supported by substantial evidence in light of the whole record.”
Lee notes that the commission granted the request of Ojai water retailer, Golden State Water Company, for increases to pay for 24 of 26 construction projects in Ojai and six other water districts included in the same ruling.
“While the Division of Ratepayer Advocates can accept that the commission may want to encourage infrastructure investment,” the appeal says, “the commission must balance that desire with the legal requirements of state statutes.”
Victor Chan, an analyst for the Ratepayer Advocates Office, said that such an appeal is rare: that of the 20 cases he's been involved with over six years, only two or three have resulted in appeals by his office.
“It's not often we appeal the commission's decision,” he said. “But we weren't happy about this decision.”
The Ratepayer Advocates office recommended a 24 percent increase for Ojai residents over three years, but the commission in February ratified an administrative law judge's decision that a 35 percent increase was justified for 2008 alone and that additional increases should be granted to cover hikes in the cost of living in 2009 and 2010.
That could mean that Golden State could get all of the 43 percent three-year increase initially requested, Chan said.
Only part of the appeal deals with problems in the ruling that pertain to Ojai, Chan said.
So even if the PUC were to grant a re-hearing and fully endorse the appeal's conclusions, relief to Ojai water users would probably only roll back the 35 percent increase to about 30 percent, Chan said.
The parts of the appeal that deal with Ojai involve administrative overhead and capital improvement costs the appeal maintains are not supported by evidence.
The PUC will decide whether to re-hear the case within a few weeks, Chan said.
In December, state Administrative law Judge Regina DeAngelis adopted the 35 percent rate increase for Ojai residents. And the PUC adopted her ruling almost exactly, Chan said.
Under the ruling, Ojai residents' water bills have increased on a sliding scale, depending on use and size of meter.
For example, the monthly bill for a resident with a 5/8th -inch line using 1,500 cubic feet of water a month, a modest amount, increased from about $50 to about $68. A customer using 3,000 cubic feet, typical for Ojai, increased from about $84 to $110.
The base service charge also increased about $11, to more than $30 a month.
The ruling was victory for Golden State Water Company, a private firm with nearly 2,900 customers in the city of Ojai and vicinity, since with inflation increases it could almost double the increase recommended by the Ratepayer Advocates Office.
Golden State had sought the 43 percent increase by 2010, although its rates are already much higher than other local water agencies.
In her ruling, DeAngelis did not set rates for 2009 or 2010, saying they should be determined in the future based on “advice letters” from the water company about factors such as inflation.
With this year's hike alone, Golden State's rate increases in Ojai over the last two decades total 107 percent.
Golden State, the subsidiary of a large corporation traded on the New York Stock Exchange, operates in Ojai under a long-standing, open-ended contract with the city. Its service cannot be discontinued since it owns the pumps and water lines that serve the community, unless local water users buy the waterworks — valued by owners at about $12 million.
Company officials have said Golden State's rates are higher than those at nonprofit publicly run water companies because it has no taxpayer subsidies, has to pay taxes and must return a reasonable profit to investors.
The return on base water rates under DeAngelis' ruling is 8.87 percent a year, lower than the 9.41 percent requested by Golden State but higher than the 8.80 percent requested by the Ratepayer Advocates Office. Under the ruling, the return on company equity is 10.2 percent, compared with a Golden State request for 11.25 percent and the ratepayer advocates' recommendation of 10.09 percent.
U.S. Supreme Court rulings have upheld a private company's right to a “reasonable” return on investment when operating a utility for the public, the judge noted.
At hearings last year, dozens of Ojai residents and city officials asked DeAngelis to grant no rate increase until Golden State improved its service and water quality.
Chan said the PUC found compelling DeAngelis' argument that the steep increase was needed to upgrade the Ojai water delivery system and water quality.
Chan said the judge allowed Golden State to spend more money more quickly to hire more employees and to repair and replace its aging waterworks than the water company proved was needed.
“She ruled against us, saying that what is needed in Ojai is better reliability and water quality,” he said.
In her ruling, DeAngelis wrote: “We direct Golden State to meet with the City of Ojai, at the City’s invitation, to discuss matters related to water quality and service reliability. Furthermore, we direct the City of Ojai to contact the (PUC) with any unresolved concerns regarding water quality and service reliability ... Then, the Director of the Water Division shall recommend a procedure to the Commission for investigating this matter further.”
Golden State must resolve “any outstanding disagreement on water quality and reliability” with city officials, she said.
A Golden State spokesman said then that the judge's approval of a 35 percent rate increase “is very good for the community of Ojai,” because it will allow the company to do much-needed repair to the city's water pipes, pumps, valves and other infrastructure. And it pays for additional workers to better serve the public.
“We're continually trying to improve service for the city of Ojai, and this decision will take us part of the way to do that,” said Patrick Scanlon, vice president for operations for Golden State.
Specific improvements in Ojai over the next two years include Golden State's $320,000 contribution to establishing a “spreading grounds” along San Antonio Creek, where water may filter down into subterranean aquifers. About $170,000 for 1,000 feet of a new water main line is also included, as are numerous new valves and hydrants.
A big disagreement between Golden State and the ratepayer advocates was how much money should be passed along from Ojai operations to support the company's general office expenses in San Dimas. For the seven Golden State water districts included in the judge's ruling, including Ojai, the difference between the two sides was about $692,000.
In its report to the Public Utilities Commission earlier this year, the Ratepayer Advocates Office concluded that Golden State had provided reasonably good service and water quality in Ojai.
It said it reviewed various Golden State and state Department of Health Services documents and found that the Ojai water system had been in compliance with drinking water standards from 2004 through 2006.
And the lack of any formal complaints to the PUC’s Public Advisor’s Office during a recent three-year period, and only six informal complaints, indicated Golden State “has generally been providing satisfactorily (sic) service to the Ojai customers,” the report said.
Indeed, Chan said he was surprised by how many angry customers showed up at a public hearing in Ojai in May to voice their complaints about rates, water quality and service. At least 100 attended and more than 20 spoke. A petition signed by more than 500 upset customers was presented.