Keep Cal Am out of water process

By Ron Weitzman

Guest commentary in the Monterey County Herald
October 26, 2011

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Shortly after I joined the faculty of the University of Minnesota, my family moved into a beautiful, brand-new duplex atop a hill and across the street from a park. The owner, who lived downstairs, headed the regional poverty program. When I asked him how he could afford to buy such a luxurious property, his answer was, "There is money in poverty."

Likewise, there is money in water, and we as ratepayers who are the sole source of that money must ultimately be responsible for its use. Local citizens formed WaterPlus as a ratepayer advocacy group precisely to exercise that responsibility here on the Peninsula.

Since WaterPlus began to promote the purchase of California- American Water by a public agency about a year ago, Cal Am's shareholder equity has gone up about 8 percent. If we continue to delay the purchase, we can expect that equity to skyrocket as Cal Am's new and extremely costly projects come on line, all entirely at ratepayer expense. Shareholder equity is about half the value of Cal Am. So, not only will ratepayers be paying for that gigantic increase in shareholder equity, we will also be increasing by twice that amount the price to purchase Cal am. A double whammy! Even a triple one, because Cal Am shareholders are authorized to receive a 10.2 percent return on their equity.

To claim, as some have, that the efforts of WaterPlus to promote the municipalization of Cal Am are a "distraction" makes absolutely no sense unless you are a Cal Am employee or shareholder.

Cal Am's recent 8 percent increase in equity is the result of capital improvement projects like the Aquifer Storage and Recovery (ASR) project in Seaside. While the Monterey Peninsula Water Management District claims these projects as its own, Cal Am pays for and owns them, with ratepayer money, of course. The water management district only operates them in what appears to be a make-work program to maintain its income stream from ratepayers via Cal Am.

All the "small" water-supply projects currently proposed by the water management district fall into that category. All are Cal Am capital improvement projects that will increase shareholder equity at the expense of local ratepayers. All will increase the value of Cal Am so it will become increasingly costly to purchase. All will increase the authorized income of shareholders, as well as income taxes and taxes on purchased properties, also paid by ratepayers. All will result in increased work and increased income potential for the water management district.

So, under these circumstances, what is the best course of action for ratepayers? The Peninsula needs to increase its water supply no later than 2016 by order of the state Water Resources Control Board. The best way to do that for ratepayers is to keep Cal Am out of the process as much as possible.

Ten of the alternatives to the Regional Desalination Project to be proposed by Cal Am at the city of Monterey's forum today are capital improvement projects that will be maximally costly to ratepayers. That is because Cal Am would pay for and own them with money borrowed and to be paid back by ratepayers at no less than 8.5 percent interest.

Better for ratepayers would be an alternative project paid for by a public agency, particularly a local city or combination of cities, which could borrow money at 5 percent or less without influencing the value of Cal Am.

The best alternative for the cities, which need water for infill development, would be a large desalination plant at either Marina or Moss Landing, the choice depending on which is less costly and more likely to be built prior to implementation of the cease-and-desist order. The cities could recover their expenses from the sale of water to Cal Am.

Ron Weitzman, who lives in Carmel, is president of WaterPlus.

Copyright 2011 The Monterey County Herald
All Rights Reserved
Monterey County Herald (California)

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