Water wars and rate hikes remain constants in Monterey County.

It works like this: every three years, California American Water asks the state to let it raise customers’ costs. This time around, Cal Am’s 40,000 Monterey District households face about a 35 percent increase in water rates.

Then the Division of Ratepayer Advocates, an independent arm of the California Public Utilities Commission, argues the water company’s request is outrageously high and the state ultimately rules somewhere in the middle.

Late last week, the DRA filed a formal protest against Cal Am’s request to raise water prices for some 600,000 customers statewide. The protest says Cal Am plans to increase rates in eight districts, by less than 10 percent in some to nearly 100 percent in others. Cumulatively, the rate hikes across the state represent a 40 percent increase, according to the DRA’s analysis.

Cal Am says it needs the rate hike to replace aging water mains and make other infrastructure improvements; the DRA calls the cost increase “massive” and questions the overall justification of Cal-Am’s request.

“These increases are very high in this economy,” says DRA Project Manager Joyce Steingass, a senior utilities engineer. “We want to make sure the requests the company has requested are fair and justified.”

On July 1, Cal Am filed an application with the PUC to set rates for 2012, 2013 and 2014. The proposal seeks to increase Monterey District rates by $11,949,000 (27.6 percent) in 2012, $1,612,000 (2.9 percent) in 2013 and $2,504,000 (4.5 percent) in 2014. The revenue, according to the company, will allow it to rehabilitate wells, build new storage tanks and replace water mains.

The average household paying about $31.53 per month, according to Cal Am spokeswoman Catherine Bowie, would see its bill increase to $39.38 per month in 2012.

“The important thing to recognize about our rates: they’re not applied evenly,” she says. “People who use more water are charged higher rates. If we’re asking for a 35 percent rate increase, that doesn’t mean everybody’s rates will go up by 35 percent. The net result will be a 35 percent increase in revenue.”

In addition to its water customers, Cal Am provides wastewater services to its Monterey County service district. The company is requesting $737,000 in additional revenue to pay for increases in operational costs and services. Only customers within the wastewater service district will see their bills increase.

The DRA’s protest questions whether any of Cal Am’s proposed revenue increase is reasonable.

“We really need to scrutinize what level of capital investment is appropriate for the Monterey District at this time,” Steingass says. “Certainly we want to make sure the Monterey District is maintained in sound operating condition and it can provide the right level of service to the customers, but does Cal Am need an additional $10 million each year for capital investment?”

The process of answering that question starts now. On Aug. 26, an administrative law judge will hold a pre-hearing conference, at which point a schedule for the rest of the proceedings will be set. The DRA continues to analyze Cal Am’s rate increase request; it will submit its findings to the judge in January.

The state will likely hold public hearings on the rate proposal around April 2011 – some of them will probably be slated for Monterey – and the judge’s proposed decision could happen as early as October 2011. The PUC then makes its decision, and rates should go into effect Jan. 1, 2012.