June 14, 2012
Monterey Herald
Monterey, California

Ron Weitzman: Cal Am taking us under

By RON WEITZMAN
Guest commentary

The truth, the whole truth, and nothing but the truth.

In our local water war, we have not always gotten the complete package. Examples: (A) Cal Am's new three-legged stool proposal to solve our water problem would founder if it were to lose one or two of its legs and (B) aquifer storage and recovery and treated wastewater, two of the legs, are less costly than desalination, the third leg.

Both statements are true, but neither is the whole truth, and the parts missing make all the difference in the world.

In this war, ratepayers stand in the middle of the battlefield between the business community on one side and the controlled-growth community on the other. Both, we may assume, are rational actors. So let us look at what they are doing and try to figure out why.

Representing the business community is the Coalition of Peninsula Businesses, led by the Monterey County Hospitality Association.

The representative of the other side does not identify itself openly, but most people familiar with our local water problem recognize it is the Monterey Peninsula Water Management District.

Both sides pay attention only to the other while ignoring the ratepayers in the middle who have to pay all the bills. We know that because in all their arguments, neither considers the unit cost of water.

The controlled-growthers favor aquifer storage and recovery and treated wastewater because they do not allow for growth. Their claim these two water sources are less costly Advertisement than desalination is true, but only partly. The total packages are less costly, but each is much more costly than desalination per unit of water delivered to ratepayers. That is not only according to Cal Am, but according to other actors in this real-life drama.

According to the water pollution control agency, treated wastewater would cost upward of $3,000 per acre-foot while, according to the CPUC Division of Ratepayer Advocates, the average cost per acre-foot in the United States for desalinated water from a plant with a 10,000 acre-foot capacity is $1,850. This is closer to the whole truth about the cost of treated wastewater.

The whole truth for aquifer storage and recovery is even less favorable than for treated wastewater. The storable amount of water depends on the excess Carmel River flow in the winter months. This past year, that was near zero. So, whatever the total cost of the aquifer storage and recovery system, including the cost of capital charged to ratepayers, the unit cost of water delivered to residential customers is that amount divided a number close to zeroŅin other words, inordinately high.

So why does the business community appear to support Cal Am's three-legged stool? Again, that is only an appearance. The treated-wastewater leg depends on the fee the water management district is trying to attach to our property tax bills, but the business community has fiercely fought that fee. Treated wastewater is certainly not in the best interests of the local hospitality industry. Imagine the sales pitch that would entail: "Come visit the Monterey Peninsula. It is only one of four or five destinations in the entire country where you can drink and bathe in treated wastewater."

Cal Am's proposal contains an alternative to the three-legged stool, and that is the single leg of desalination that the company would provide if treated wastewater does not work out.

Whichever side wins, ratepayers will pay dearly because Cal Am would own the desalination plant with all the capital and interest costs being paid by the ratepayers in bills that could triple, at least.

Cal Am's rate base, used to determine shareholder profits, could quadruple, and the company could improve its current dangerous debt-to-equity ratio. Right now, Cal Am on the Monterey Peninsula owes substantially more than it could be sold for on the open market. Most importantly, because the cost of capital charged to ratepayers by a BBB-rated privately owned company like Cal Am is so much greater than if the company was publicly owned, during the next 30 years ratepayers could expect to pay between $300 million and $500 million more than if a public entity, such as the Marina Coast Water District or the city of Pacific Grove, owned the plant.

Weitzman is a longtime water activist and president of WaterPlus, which promotes public ownership of the water utility.

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