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Saturday, Aug 31 2013 05:00 PM

LOIS HENRY: Why is Cal Water asking for that big rate hike?

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    Californian columnist Lois Henry

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BY LOIS HENRY Californian columnist lhenry@bakersfield.com

Here's a question you've probably never pondered: Why do water rates differ so much in little old Bakerspatch?

I'd never really pondered it either.

Related Info

Lois Henry appears on "First Look with Scott Cox" every Wednesday on KERN 1180 AM from 9 to 10 a.m. The show is also broadcast live on www.bakersfield.com. You can get your two cents in by calling 842-KERN.

That was until 25-year-old Courtney Compton came to my office loaded down with rate lists, charts, tables and maps.

Why, she wanted to know, is she paying so much more for water than her mom and sister? The three women each live in a different water district and each uses roughly the same amount of water each month, though Compton uses the least.

Still, Compton, who gets her water from California Water Service (Cal Water) pays more for her water. This past month she paid almost double what her family members paid.

Her mom, who buys water from Vaughn Water Company in Rosedale, pays the least. Compton's sister, who gets water from Bakersfield City's system is the next cheapest.

Why?

That question led down a rabbit hole of explanations.

After plowing through all those explanations and reading far more than any normal human being should ever have to about "rate design theory" and talking with engineers and water managers, here's my conclusion:

It's all about profit.

Cal Water is a for-profit, investor owned utility, the key word there being "investor."

Sure, investors put a lot of money into companies and create a good system but they also expect a healthy return. That return comes from ratepayers like Compton.

So, while a lot of factors go into setting rates (water costs, treatment, infrastructure, etc.), Cal Water also has a profit factor.

Right now, Cal Water's allowable profit is set at 7.94 percent by the California Public Utilities Commission. But it can be as high as 10 percent or higher.

Vaughn, meanwhile, is a non-profit, shareholder owned company. Shareholders get a vote in how the company is run, not dividends.

Bakersfield City is a municipal water district and not legally allowed to profit from its water service. There's a growing movement afoot to increase municipal ownership of water districts, but we'll come back to that.

Vaughn's general manager Van Grayer agreed that Vaughn's rates are set with operations and affordability in mind, not profit.

But, he warned "You can't do an absolute apples-to-apples comparison of water rates between districts."

Rudy Valles, general manager of Cal Water's Bakersfield district said much the same, noting that even where Vaughn, Bakersfield and Cal Water get their water can affect rates.

Straight water costs

Vaughn relies exclusively on groundwater, which it doesn't pay for. And it doesn't invest in groundwater banking, which can be expensive. It does pay a pump tax to Kern County Water Agency, which theoretically helps with the Agency's groundwater banking programs, which, in turn, benefit Vaughn by recharging the aquifer.

Cal Water and the city have a somewhat similar array of water sources, including Kern River, groundwater and some imported state water.

The big difference is the city already owns the river water. Cal Water has to buy it.

Cal Water, the largest district in Bakersfield, also has to pump water uphill to customers in the northeast. It has to pay property taxes and franchise fees. It serves the oldest parts of town, which means it also has to deal with some of the oldest infrastructure. And Cal Water banks water for future demand.

(As an aside, a friend in the water world told me a lot of drinking water purveyors are keeping costs low by putting off groundwater banking or finding alternate supplies. He equated that with "whistling in the dark," considering California's water realities and gave Cal Water kudos for its forward thinking in that area.)

OK, so Cal Water is no slouch when it comes to the water biz.

But that still doesn't fully explain why it needs so much more money from ratepayers to do essentially the same job as municipal or mutual water companies.

Not incidentally, Cal Water contracts with the City of Bakersfield to operate the city's system. It keeps the water going and does all the billing for about a $6 million a year. The city pays for Cal Water's services from its water proceeds.

Think about that.

Bakersfield's much, much lower rates not only pay for the system's upkeep and operations, they also cover Cal Water's services. (For reference: Bakersfield charges .91 per 100 cubic feet of water. Cal Water charges between $1.50 and $1.88 per 100 cubic feet depending on customer useage.)

Cal Water does make money off that contract, by the way. Not a lot, Valles told me, but the company isn't losing money.

Which, again, begs the question of why Cal Water charges its own customers so much more.

Expect to pay more

If it's successful in its current rate case, Cal Water will be charging its Bakersfield customers even more over the next three years -- 25 percent more. That would bump rates to between $1.86 and $2.35 per 100 cubic feet of water.

The rate increase request isn't exclusive to Bakersfield. Cal Water, one of the state's largest for-profit water companies, has requested increases in all 23 of its districts, including a 42 percent increase in the Kern River Valley over the next three years.

Residents here and in the Kern River Valley have protested to the California Public Utilities Commission and the Division of Rate Payer Advocates has recommended much lower increases, 5.1 percent over the next three years for Bakersfield, and 30.6 for the Kern River Valley.

Prevailing wisdom is the PUC will land somewhere in the middle by the end of this year.

Getting out

For some communities, the constant rate increases have become intolerable.

Ojai was the latest town to strike back, with residents there voting overwhelmingly last week to tax themselves $60 million so the Casitas Municipal Water District could take over Golden State Water by eminent domain. Golden State is another large for-profit water company in California.

In fact, there's been a wave of such ratepayer revolts across the country, as The Wall Street Journal recently reported.

Valles said Cal Water is well aware of the backlash.

"Yeah, we're not excited about it."

Years ago, many mostly small, poor towns turned to private companies when they couldn't keep up their own water systems. But repeated rate increases have rallied the populace to take those systems back.

Between October 2007 and October 2011 the number of Americans served by privately owned systems fell 16 percent, while the number served by public ones rose 8 percent, according to a 2012 report by Food and Water Watch, a group that supports public control of water systems.

"Water is a basic public health need," said Adam Skow, a state campaign director in the Food and Water Watch Oakland chapter. "And these ever increasing rate hikes, there's a limit to how much people can take."

He doubts Cal Water will get its requested 25 percent or 42 percent increases in Kern County.

"It's a game they play," he said. "They request something outrageous, 30, 40 even 60 percent, and get half of that. The PUC says, 'Yeah, that's fair.' And the rates continue going up. The model is all wrong."

Food and Water Watch helps communities like Ojai by providing research and campaign advice.

It's a years-long effort, he said, of taking over a privately run water company. But it's an investment in the community's future.

He listed a number of California communities, including Monterey, Marysville, Claremont, Lucerne and others now looking at making that investment.

Compton, a very sharp young woman who easily sniffs out a half-baked answer, told me she just wanted to understand the reasoning behind her water bills.

But the more she dug, the less she liked the smell.

"I'd like to keep going until something happens on this," she told me.

Yeah, rabbit holes can be like that.

Opinions expressed in this column are those of Lois Henry, not The Bakersfield Californian. Her column appears Wednesdays and Sundays. Comment at http://www.bakersfield.com, call her at 395-7373 or e-mail lhenry@bakersfield.com LOIS HENRY: Why is Cal Water asking for that big rate hike?

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