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Like Water for Profits

Like Water for Profits


Felton residents to contest water rate increase at upcoming public hearing

by Laurel Chesky

In a time when big corporations are going belly up, small businesses are struggling to survive, and the rest of us just hope we can make the rent each month, one company seeks to jack up its revenue by 50 percent. And, one way or another, the residents of Felton will foot the bill.
In September, California-American Water Company (Cal-Am) asked the California
Public Utilities Commission (CPUC) to approve a rate hike in its
Felton service area, amounting to a revenue increase of 57 percent
this year, and another 9 and 2 percent increase in 2004 and 2005,
respectively. The company delivers water to 1,350 customers in the
Felton area.
Those residents will get an opportunity to give the CPUC a piece of
their collective mind at two Jan. 29 hearings, taking place at the
Felton Community Hall at 2 p.m. and 7 p.m. The hearings precede a
formal evidentiary hearing scheduled for March, after which an
administrative law judge will make a recommendation to the CPUC.
The company cannot raise rates without the agency’s approval.
The Santa Cruz County Board of Supervisors and a group of Felton
ratepayers, organized under the name FLOW (Friends of Locally
Owned Water), are formally contesting the rate hike, and more than
1,200 citizens have signed a petition protesting the increase. FLOW
also hopes to force Cal-Am to sell the water system to the people of
Cal-Am, a subsidiary of America Water Works Company, Inc., the
largest publicly traded utility in the country, delivers water to 10
communities in California. However, it seeks to raise rates in just four
areas: Montara in San Mateo County, Larkfield in Marin County, a
portion of Sacramento, and Felton. In Felton, the proposed increase
would raise residential rates by 4 percent, institutional users would
pay 51 percent more, and fire suppression users’ rates, including the
volunteer fire district, would jump by 82 percent. Institutional users
affected by the proposed hike include three schools and the teen
“The revenues are basically all paid by Felton folks, one way or
another,” says county Supervisor Jeff Almquist, who represents the
San Lorenzo Valley and is leading the charge to protest the rate hike.
Almquist is particularly concerned about how the rate increase would
affect Felton schools. The San Lorenzo Valley Unified Schools, he
says, already faces a $2 million deficit, and is considering laying off
teachers and closing schools.
Money for Nothing
In Cal-Am’s rate increase application, the company argues that rates
have “with the passage of time, become unjustly and unreasonably
low,” and only reflect increased costs of water service. The company
wants to bring Felton rates in line with its Monterey service area.
However, the company is not hurting. American Water Works
reported a 10.9 percent profit margin in 2000. And Felton residential
rate payers already pay about 60 percent more than the rest of the
San Lorenzo Valley.
Critics contend that it’s unfair to inflate rates to match Monterey,
where rates should be higher because the area is shackled by a water
crisis, and Cal-Am has poured money into pursuing an unpopular
new dam on the Carmel River. Now that the dam appears to be
politically dead in the water, Cal-Am will likely have to finance new
water sources, such as a desalination plant.
On the other hand, the San Lorenzo watershedFelton’s water is
drawn from Fall Creekenjoys a rare abundance of water. Felton
ratepayers, critics say, should not have to finance Monterey’s
problems. “Why should the people of Felton have to pay for their
(Cal-Am’s) mistakes in Monterey?” says Scott Millar, an aide to
World Wide Water
As if a rate increase in the middle of an economic downturn weren’t
painful enough, Cal-Am’s pursuit of higher revenues comes on the
heels of American Water Works’ announcement to merge with RWE
Aktiengesellschaft, a German multinational conglomerate. And the
timing of the proposed increase has many speculating that the rate
has little to do with “rate equalization,” as Cal-Am claims, and more
to do with making the company look better on paper.
“They’re just really gouging the customers and raising the costs of
water astronomically since it’s been taken over by Cal-Am,” says
Gene Martin, a Felton ratepayer and member of FLOW. “Now they
want to raise the rates to get a bump in value before they sell it to the
next company.”
RWE is Germany’s largest electricity supplier and owns a stake in
500 companies, including ventures in oil, mining and construction.
American Water Works struck a deal to sell to RWE for $7.6
billion. The CPUC approved the sale in California last month.
However, state PUC’s in 21 other states must also approve the sale.
RWE is poised to buy the water company for millions of dollars
more than the water company is worth on the stock market. Under
CPUC regulations, a utility company cannot recover premiums (the
difference between market price and purchase price paid for an
asset) from the ratepayers. However, by hiking up rates now,
Cal-Am’s assets look all the more attractive to its prospective buyer.
In other words, if the sale happens, RWE and American Water
Works stockholders win, while Felton water users lose. Meanwhile,
residents are concerned that they face poorer service from an owner
based farther and farther away from little Felton.
Back Splash
Thus a movement is underfoot by the citizens of Felton to reclaim
their water. In the rest of the San Lorenzo Valley, water is delivered
by the San Lorenzo Valley Water District, a public entity managed
by an elected board of directors. When the district formed in 1941,
Felton chose not to join and to continue having its water delivered by
a private company. Now Felton residents have changed their minds.
Residents have asked the water district to take over Felton’s water
system, by force if necessary.
“We want to see the San Lorenzo Valley Water District
condemnor whatever they have to doto take over the Felton
water district,” Martin says. “The prices are just going up with
private ownerships of water companies.”
Such a hostile take over would be two-fold: First, the water district
would have to get approval from the Local Agency Formation
Commission (LAFCO) to expand into Felton. Next, the district
would have to convince a judge that it’s justified in wielding its power
of eminent domain. If the judge agrees and allows the district to take
over Cal-Am’s assets, the district would have to pay the company a
fair market price. Initial estimates range from $4-9 million for
Felton’s water system.
The water district is taking steps towards a condemnation. It has
hired a consultant to estimate the costs or possible cost savings to the
district of making such a move.
“The district’s position is that we’re not in the acquisition business,”
says Jim Mueller, general manager of the San Lorenzo Valley Water
District. “However, if we can assist the citizens of Felton, if they
desire to have ownership of their water system held by a locally
elected body, we are happy to help them.”
Mueller says the district is expecting a report on the fiscal feasibility
of swallowing Felton’s system by mid-February. He also says the
district is poised to formally apply to LAFCO to expand its service
area within the next month.
But with Cal-Am’s rate increase already moving through the gamut
of red tape, Felton residents are in a race against the clock. Once the
rate increase is approved, ratepayers will have to shell out more
money to reclaim their water system from an international
“Practically speaking, it’s not an important asset to them (RWE and
Cal-Am),” Almquist says. “It’s obviously important to the people of
The California Public Utilities Commission holds hearings
concerning the Felton water rate increase at 2 p.m. and 7 p.m.
on Jan. 29, at the Felton Community Hall, 6191 Hwy. 9, Felton.


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