Rage and frustration toward California American Water, and the California Public Utilities Commission, burned in full display at the Sept. 1 CPUC hearing in Carmel, where several members of the public railed against rising water bills, and the CPUC’s compliance in passing on costs to ratepayers.
“You always approve everything they do,” said Carmel Valley resident Larry Parrish. “The ratepayers, we pretty much get screwed all the time.”
And the rate increases will continue: According to Cal Am spokeswoman Catherine Stedman, the Peninsula’s average household water bill is presently $62 per month; when, or if, Cal Am’s desalination plant comes online in 2020, she says the average bill will be $120 per month.
“It’s a very significant increase,” she says, “but we believe the project we proposed is the least costly option to solving the water supply issues, and we have no choice but to solve these issues.”
The public’s frustration toward Cal Am is born, in part, out of the fact the company can earn nearly a 10-percent profit – approved by the CPUC – on a third the money it spends on the desal project, which means the more it spends, the more profit the company can make. Moreover, Cal Am may recoup money it’s invested in its own project, even if it fails, adding a line item to water bills.
That can happen whether or not competing desalination projects, DeepWater Desal and the People’s Project, ultimately win out.
The cost per acre-foot of Cal Am’s desalinated water is estimated to be about $3,800, while water from the two competing projects, if sent to the Peninsula, is estimated to cost between $1,565-$2,260. There’s a big asterisk there, though: If either of the competing projects are ultimately chosen to supply the Peninsula, the additional Cal Am charges for its desal operation could push water rates past the steep cost of Cal Am’s water.
It’s a threshold Dave Stoldt, general manager of the Monterey Peninsula Water Management District, refers to as the “indifference point.” Cal Am has spent about $43 million on its desal project to date, and Stoldt estimates the so-called “sunk costs,” money spent on projects that haven’t panned out, would add $588 per acre-foot to any alternate water project, no matter who builds it.
In other words, by the time Cal Am spends between $113-$163 million on its desal project, the competition may no longer be cheaper, if the CPUC allows sunk costs to be passed onto ratepayers.
The project’s budget – excluding the pipeline that will also serve Pure Water Monterey – is about $202 million.
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CORRECTION (9/9/16): An earlier version of this story incorrectly stated that Cal Am can earn nearly a 10-percent profit on about half of the money it spends on its desal project. While Cal Am can earn that much profit on other capital projects, they can only earn an approximate 10-percent profit on a third of the money they spend on the desal project, not half. The Weekly regrets the error.