CalAm VP Steve Leonard explains why he is asking for a big rate hike this week.
Thursday, September 14, 2006
Steve Leonard is sitting at a bar, in the Old Bath House, when the bartender says to a couple: “You ought to go talk to Steve.” The woman walks over and says, “Why should I talk to you?” Leonard replies, “Well, I may be one of the most hated men in Monterey.”
She asks if he’s a landlord. Leonard says no. “Oh, you must run the water company,” she says.
“You’ve got it,” Leonard says.
Leonard, the vice president of California American Water Company who runs the local office, tells this story while sitting in his Monterey office. “So she’s getting all wound up, just to chomp into me, and I say, ‘Look, before you start, tell me, when was the last time you were out of water?’
“Her husband says, ‘We’ve never been out of water.’
“I say, ‘Let’s start the conversation there.’ And you know, that is where we start the conversation.”
Love him or hate him, Leonard’s Cal Am owns the Monterey Peninsula’s water system. And Leonard is the man in charge of solving the Peninsula’s persistent water problems.
In 1995, the state water board ordered Cal Am to reduce the amount of water it pumped from the Carmel River by 70 percent and to find an alternate water supply for the Peninsula.
The first plan—a new dam on the river—was not loved by voters nor by state or federal fish and wildlife groups. In ‘98, then-Assemblyman Fred Keeley declared the dam dead, and wrote legislation requiring the California Public Utilities Commission to come up with water supply options for the Peninsula.
In 2002 the PUC released its highly anticipated report. It’s solution: a seawater desalination plan at Moss Landing and a groundwater storage facility.
On Thursday, Sept. 14, at a public hearing in Seaside, Cal Am will ask the PUC to approve its proposal to charge ratepayers for “all present and future costs” related to the desal project—about $200 million. Recently, the Weekly sat down with Leonard to talk about the water company’s proposal. For the complete transcript of our interview. read part II on this site. An edited version follows:
• • •
WEEKLY: Put us in your shoes. You’ve got the federal and state government breathing down your neck to solve a 20-year-old water supply problem that you did not create. The water district hasn’t been able to fix it. Voters don’t want a dam. A desalination project keeps getting stalled. What do you do?
LEONARD: I think it’s important for your readers to understand in blunt terms. It’s a relatively small water district: 40,000 customers, 110,000 people. Some of the things that have happened to this district are completely unrelated to who owns it: The water rights issue [on the Carmel River] is something that obviously nobody thought about until the ‘90s. It’s an unusual occurrence for an operating water utility to lose 70 percent of its water rights. That doesn’t happen to big utilities and to have it happen to this utility make us special, in that special sort of way.
And then, to add to that, you have the silting of the dam, the seismic stability issues with the dam. To have both of those things occur to one utility in a 10 year period is stunning.
To add to that, this is an old system. It’s a system that, for the most part, Cal Am didn’t build. Without the water rights problem, without the dam problem, this would be a difficult water system because of its own infrastructure issues.
So those three things together make this an expensive system to operate, a delicate system to operate, and expensive for the customers. So all these things conspire, and again, it’s not because we’re a private utility that these things happened. It’s the fact of the matter. These things occurred.
Utility infrastructure all across the America is in deep, deep trouble.
We happen to have two projects in front of us that run at least a quarter of a billion dollars—the dam and the water supply project—those two issues alone represent a quarter of a billion dollars, $250 million of extra capital that needs to be done here. And we have 40,000 customers to pay for that. It is a stunningly difficult equation, and much of what happens here stems from that.
The people of the Peninsula feel very special about their water supply, and passionate about it. They’re frustrated because we could spend a quarter of a billion dollars and produce no new water. Our proposal for the coastal water project is to replace the [overdraft] of the Carmel River, and a little of the Seaside basin. Replace. Not produce more. And fixing the dam, strengthening it or removing it, doesn’t produce any new water. So two major, major projects that at the end of the day produce zero water, no new water. And, that’s the fact of the matter.
I understand why people scratch their heads and go, “My God.” That’s the situation we’re facing no matter who sits in my chair. That’s the situation we face every day.
WEEKLY: And on the how-do-you-pay-for-that issue: Why should ratepayers start paying now, when the project has not even been approved?
LEONARD: Well, I think there’s certainly precedent at the PUC for paying for projects while they are in construction. One of the things we’ve made clear from the get-go is that we’re open to essentially any solution that presents itself. We’re open to doing it ourselves, because—keep in mind the orders are against Cal Am, they’re not against any other entity. We have orders from the state board and from some of the fish and frog folks that we need to solve.
So we’re the ones on the hook to solve this. We have, since 2004, tried to partner with the County. As early as March 2004, we had a letter of intent signed by the Board of Supervisors to work with us towards a regional solution. Well, the Board of Supervisors backed away from that.
We’ve had the promise of another utility [Pajaro Sunny Mesa Community Service District] building a desal plant in Moss Landing. They’ve never come to us with a proposal. I’ve asked them twice to their face: Bring us a proposal; we could buy the water from you wholesale.
My direction is to find a water supply, and the traditional way to do that is to build it yourself. We’ve proceeding along that line but we have worked with, we continue to work with, every entity that is willing to work with us. Absent a viable County answer, a viable answer from another utility, we’re still on the hook and we’re moving forward.
Now, as we move forward, you get to the tactic of well, how do you pay for this? If we’re going to do it, and that’s an “if”—we continue to look for partners. One of the things we want to do is save ratepayers’ money. Well, if we collect money early for this project, first of all it avoids rate shock—rate shock being rapid increases in rates. To be fair, some people will find any increase in rates to be rate shock.
So, here’s a philosophical point: Is it early, or should we have been doing something 10 years ago? This is the ghost of 95-10 [the state order to reduce pumping on the Carmel River]. This is the bill for 95-10, which, for 10 years, really hasn’t been in play in a practical way.
The typical way we would do this as a company is to build the asset and then charge people on the backside. This, I think, by anybody’s definition, is an extraordinary project. It’s not like refurbishing a pump station, or building a new pipeline. This is building a new water supply and that’s a very different kind of thing.
By asking for the money up front, it will lower the cost of the project to the customer in the long term. What it does for us, first of all, it allows the rates to ramp up as opposed to go up in a cliff-like fashion. Also, because we don’t have to borrow the money, that actually saves money because we’re not paying a debt service on loans we might take out to cover the construction.
CAL AM’S RATE HEARING beings at 7pm Thursday, Sept. 14, In the Laguna Grade Room at the Embassy Suites Hotel, 1441 Canyon Del Rey Blvd., Seaside.
|THE WEEKLY TALLY||250,000||
The number of bills, covering issues ranging from healthcare to local government, that Assemblyman Simón Salinas (D-Salinas) sent to Governor Arnold Schwarzenegger this year. Three have been signed into law; nine await his signature or veto. Source: democrats.assembly.ca.gov/members/a28/