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Wrung Dry 

How can a private water utility charge four times the going rate and get away with it? (Hint: PG&E's regulators are involved)

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Cal Water offered rebuttal testimony to its regulator's claims, taking issue with its "inflammatory and accusatory" language which could "unnecessarily agitate customers." The company claims it was burdened by excess costs in the area of healthcare, legal fees and environmental compliance, and that the DRA overstated some of the costs of its unhired employees.

"Due to these higher offsetting expenses, by not increasing its workforce to the authorized level, Cal Water still did not earn its authorized rate of return and there were no windfall profits," the document states, displaying annual returns between 5.59 and 8.07 percent.

Lisa Bilir, a supervisor with the DRA, confirmed in an email that the issue of the $3.05 million was dropped after Cal Water's testimony, and the company was not required to create an account for refunds. She further explained that each settlement reached between a utility and the DRA is "pro-rated," meaning that it would more likely lower the number of new hires Cal Water could request in its upcoming rate case rather than give a refund outright. This adjustment went into effect for Cal Water; the settlement also required a higher level of documentation for several of Cal Water's future hires.

But Bilir can't explain why the DRA's language was both adamant and specific about a refund prior to the settlement, if refunds are not in fact the PUC's practice. When asked if the term was inappropriately used, she replied that it was not. She explained, however, that after all of the back-and-forth, a settlement is often reached between the DRA and a utility in which each side concedes some of its requests to reach a compromise. Surprisingly, though the final terms of such an agreement are published, Bilir says the negotiation itself was "closed," and she can't discuss its exact details.

"It was a very large case, and we had to look at it in context," she says, speaking of the $3.05 million. However, she also admits: "It was a very large sum of money."


In the local districts, ratepayers have expressed outright contempt for the PUC's style of regulation, which has allowed hike after hike—hitting Dillon Beach with rate increases as high as 150 percent in the 2006–'07 cycle, according to an April 2013 article in the Point Reyes Light. At the Tomales public meeting, residents of the tiny district lambasted the regulatory agency, scoffing at the fact that Cal Water's vice president and CFO Thomas Smegal, who drew a compensation package of $979,000 in 2012, used to work for the PUC.

In fact, according to Reuters, three of Cal Water's top employees have worked in the past for the very regulatory agency that oversees their current company—Smegal, vice president of corporate development Francis Ferraro and corporate secretary Lynne McGee.

"Generally speaking, there's a revolving door between the utilities and the commission that regulates them," says Mindy Spatt with The Utility Reform Network, a watchdog organization that has called for increased fines for PG&E in the wake of San Bruno—and for PUC head commissioner Michael Peevey's resignation. Spatt adds that there would be more concern if the door "went the other way," and employees of the utility went to work for their regulator. Case in point: Peevey himself was previously a top officer at Southern California Edison, and in 2008 allowed his former company $843 million more in rate hikes than the PUC's own staffers recommended, according to Reform Network.

click to enlarge RED HANDED PUC director Mike Peevey was caught recently skipping a Senate meeting to attend a utility confab at Silverado Resort & Spa in Napa.
  • RED HANDED PUC director Mike Peevey was caught recently skipping a Senate meeting to attend a utility confab at Silverado Resort & Spa in Napa.

But other less-than-apparent links between the utility and its regulator exist. Peevey's wife is Sen. Carol Liu, D-La Canada Flintridge, who has received campaign contributions from Cal Water—$500 each in 2008 and 2012. Liu has also received contributions from a group called the California Water Association, which represents PUC-regulated water companies. That group gave Liu $5,200 in 2010 and $1,000 in 2011, according to MapLight. In 2004, Sempra energy—also regulated by the PUC—was involved in a scandal in which its VP of regulatory affairs was caught on camera saying it would look "real bad" if someone from Sempra had not attended a fundraiser for Liu.

"To the ordinary consumer, that really looks like a conflict of interest," says Spatt.

Duncan and Townsley declined to comment on the campaign contributions, but they denied any insider dealings with their regulator during ratemaking cases.

"There is no cozy relationship, I can assure you," Duncan says. "It is a very arms-length process based on sworn testimony. It's designed to be adversarial and get at the truth."

Coziness is subjective, apparently. One final connection involves the controversial California Foundation on the Environment and Economy (CFEE)—a 501c4, or "dark money nonprofit," which is not required to disclose its donors publicly. Such organizations have increasingly been the subject of public scrutiny due to their widespread use for lobbying purposes, though, like Super PACs, they can't contribute directly to a single candidate or campaign.

In 2011, the San Francisco Bay Guardian reported that the CFEE footed the bill for a lush, 12-day "travel-study excursion" to Madrid, with stops in Sevilla and Barcelona. Peevey was on that trip, as was his wife and the head of PG&E. He also flew to Poland earlier this year at the CFEE's expense. His recent jaunt to Napa—skipping a senate meeting—was for a CFEE event.

"It's not a transparent organization," Spatt says, adding, "There are all these opportunities for utilities and PUC appointees to hobnob at the CFEE in Napa Valley, but that's by invitation only. The customers who will be paying Cal Water's rate hikes are not invited."

Like so many other utility heads, Nelson, Cal Water's CEO with a professional history at PG&E, is on the CFEE's board.


Meanwhile, some ratepayers in Cal Water's small districts watching their fees climb ever skyward don't feel even remotely protected by the PUC. "This company is using us like a piggy bank," said Dennis Sarantapoulas at the Tomales meeting in May.

And so they conserve. But with a median age of 57, Dillon Beach has the highest concentration of senior citizens in an already graying Marin, many of whom live on fixed incomes and struggle with age-based disabilities. For some, scrimping on water doesn't just mean re-wearing dirty clothes—it means directly ignoring medical advice. At 64, Lea Christensen-Morris claims she doesn't clean her medical equipment daily like she's supposed to, and uses a syringe instead of her shower faucet to rinse a chronic wound. Theresa Byrne, who lives on an SSI check of under $1,200 a month, says she's skipped medication and dental care to pay her bills, and when two of her molars rotted, she simply had them pulled.

Another woman at the April Lucerne meeting who spoke about receiving multiple $1,000 bills addressed the room full of angry people and representatives from the regulatory agency bluntly. "I don't know why the [PUC] is here," she said, "expect to let we the people know that we don't matter at all."

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