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					                  BEFORE THE PUBLIC UTILITIES COMMISSION
                       OF THE STATE OF CALIFORNIA


In the Matter of the Application of California-
American Water Company (U 210 W) for an order
authorizing it to increase its rates for water service         Application 05-02-012
in the Monterey District to increase revenues by               (Filed February 16th, 2005;
$9,456,100 or 32.88% in the year 2006; $1,894,100              Amended Application filed
or 4.95% in the year 2007; and $1,574,600 or 3.92%             February 28, 2005)
in the year 2008; and for an order authorizing
sixteen Special Requests with revenue requirements
of $3,815,900 in the year 2006, $5,622,300 in the
year 2007, and $8,720,500 in the year 2008; the total
increase in rates for water service combined with the
sixteen Special Requests could increase revenues by
$13,272,000 or 46.16% in the year 2006; $7,516,400
or 17.86% in the year 2007; and $10,295,100 or
20.73% in the year 2008


    PROTEST OF PUBLIC CITIZEN TO CALIFORNIA-AMERICAN WATER
  COMPANY’S APPLICATION FOR AUTHORITY TO INCREASE ITS RATES FOR
             WATER SERVICE IN ITS MONTEREY DISTRICT


                                                         Juliette A. Beck
                                                         Public Citizen
                                                         1615 Broadway, 9th Floor
                                                         Oakland, CA 94612
                                                         Telephone: 510-663-0888
                                                         Facsimile: 510-663-8569
                                                         E-mail: jabeck@citizen.org


The California office of PUBLIC CITIZEN (“PUBLIC CITIZEN”) respectfully makes
this submittal as its protest to Application No. 05-02-012 of the CALIFORNIA-
AMERICAN WATER COMPANY (U 210 W) for authority to increase its rates for
water service in its Monterey District.
A. The facts constituting the grounds for the protest:

1.       PUBLIC CITIZEN is a national non-profit consumer advocacy organization with

over 30,000 members in California, including many members in California American

Water Company’s (Cal-Am) service areas.                   Public Citizen’s Water for All program

carries out its work to uphold the international recognition that access to clean and

affordable water is a basic human right.1

2.       Public Citizen acknowledges that the Monterey District water infrastructure is

aging and that Cal-Am is required to adhere to the State Water Resources Control Board

(SWRCB) Order 95-10, both of which will increase the costs of capital expenditures.

However, we are concerned that the proposed rate increases in this application are not

just and reasonable and will result in rate shock that will adversely affect ratepayers and

disproportionately impact low-income ratepayers in particular. We are concerned that Cal

Am’s existing low income assistance program for the Monterey District– called the

Program for Alternative Rates (PAR) – may not be adequate given the proposed rate

increases and needs to be thoroughly evaluated to ensure proper funding. The California

Legislature requires an adequate supply of healthful water at an affordable cost. (Public

Utility Code Section 701.10 and 739.8).2 The Census Bureau reported in 1999 that

13.5% of the population in Monterey County is below the poverty line; median household

1
  “The Right to Water.” General Comment 15. UN Committee on Economic, Social and Cultural Rights,
2002.
2
  Public Utility Code Section 739.8, effective January 1, 1993 provides:
    (a) Access to an adequate supply of healthful water is a basic necessity of human life, and shall be
         made available to all residents of California at an affordable cost.
    (b) The commission shall consider and may implement programs to provide rate relief for low-income
         ratepayers
    (c) The commission shall consider and may implement programs to assist low-income ratepayers in
         order to provide appropriate incentives and capabilities to achieve water conservation goals.
    (d) In establishing the feasibility of rate relief and conservation incentives for low-income ratepayers,
         the commission may take into account variations in water needs caused by geography, climate and
         the ability of communities to support these programs.


                                                     2
income in Monterey County is just above $48,000 and 34.5% of all households make less

than $35,000.3 The Monterey District already has among the highest water rates in

California and Public Citizen is concerned that if water rates increase, an increasing

number of ratepayers will be unable to afford water at the rates that Cal Am is proposing.

3.      Recent rate cases in Cal-Am service districts have been challenged because they

were unwarranted or prohibitively high. In D.04-12-055 Cal-Am requested, and was

authorized permission to decrease rates in its Village District (City of Thousand Oaks).

This decrease occurred after representatives of the City of Thousand Oaks argued during

the RWE Thames Water acquisition case (D.02-02-036) that Cal Am’s rates were

approximately 30% higher than the publicly-owned municipal water system, despite the

fact that both Cal Am and the municipal utility purchase water wholesale from the same

source (Calleguas Municipal Water District), and have comparable infrastructure and

staffing costs.     In the most recent Felton General Rate Case (A.05-02-013) the PUC

approved a combined 44.2% rate increase for Felton, but delayed implementing the rates

citing “rate shock” concerns until after a decision on Cal Am’s proposed consolidation of

the Felton and Monterey districts.4

4.        D. 02-12-068 authorized the change of ownership of Cal Am as a part of the

merger of German-based and British-run transnational water company RWE Thames

Water with American Water Company (the parent company of Cal Am) on the condition

that RWE Thames Water would not pass on the high acquisition premium along to Cal


3
  US Census Bureau, Quick Facts for Monterey County
http://quickfacts.census.gov/qfd/states/06/06053.html
4
  Cal Am made the proposal to merge the Felton and Monterey districts in the last GRC. (A.02-09-030).
However, the Commission found that the record in that proceeding did not support a finding that the
advantages of consolidation outweigh the disadvantages. (D.04-05-023, Finding of Fact 13.) The
Commission ordered Cal Am to file a separate application addressing a number of concerns the
Commission had with the proposal. That application (A.04-08-012) is now pending before the
Commission.


                                                   3
Am ratepayers. The Commission found that the proposal met the standards of Pub. Util.

Code Section 854 (b), which requires mergers to be in the public interest. Public Citizen

is concerned that Cal-Am, as a subsidiary of American Water and RWE, has failed to

show how these public benefits have been realized.

5.    Ratepayers in Cal Am’s Village District and Felton have testified in D. 04-12-055

and A.04-08-012 respectively about deteriorating service problems in these two districts.5

6.       There are at least two major desalination plants being proposed in the Monterey

region. No decision has been made about which, if any, desalination plant will be built.

Monterey County, along with other public agencies, requires permits to construct and

operate a desalinization treatment facility. Monterey County Health and Safety Code

Section 10.72.030 requires proof of assurance that each desalinization treatment facility

be owned and operated by a public entity. Cal Am’s Coastal Water Project includes a

proposal to design, build and operate a large desalination plant adjacent to the Duke

Energy plant at Moss Landing. Cal-Am is requesting $160 million, and possibly $260

million, to recover costs for this proposed desalination plant despite the fact that neither a

partnership with a public entity, nor a contract with Duke Energy, has been obtained.

6.       The United States of America is a signatory to international trade agreements

including the North American Free Trade Agreement (NAFTA) and the various



5 D.04-02-055, at page 7 notes:


“The PPH was held in Thousand Oaks on June 29, 2004. About 40 ratepayers from the Village District
attended the PPH, and about half of them spoke. 5 Many of these customers noted that Cal-Am’s rates were
significantly higher than those charged by City or Cal-Water, and almost all of the speakers were critical of
Cal-Am’s response to two emergencies that had occurred in the Spring of 2004, one involving an “algae
bloom,” and the other a water main break that took place the night before the PPH. Several speakers
complained that when they telephoned Cal-Am’s national call center (which is located in Alton, Illinois) on
June 28, they were either put on hold for long periods, treated rudely by service personnel while trying to
describe the problems in their areas, or had their phone calls cut off.”




                                                     4
agreements of Geneva-based World Trade Organization (WTO). NAFTA already treats

water as a commodity covered under the rules of this agreement. 6                        The General

Agreement on Trade and Services, which the U.S. is a party to, is currently under

negotiations in the WTO. Water services may be covered by this agreement, which could

potentially bind local regulatory bodies and state and local governments to the terms of

this agreement.


B. The effect of the application on Public Citizen’s constituents

1.      Public Citizen has approximately 250 active members in Cal-Am’s Monterey

District who will be directly impacted by this application. Public Citizen is filing this

protest on their behalf.

2.      Public Citizen is a national nonprofit membership organization that has since its

founding in 1971 fought for corporate and government accountability in order to

guarantee the individual’s right to safe products, a healthy environment and workplace,

fair trade and clean and safe energy sources. Our Water for All program works with

communities and individual consumers throughout California, in the U.S. and

internationally to guarantee the right to safe and affordable water. For the past five years,

Public Citizen has monitored the international trend to deregulate and privatize water

through the acquisition of public utilities, obtaining operations maintenance contracts,

desalinization, speculative trading of water rights, bulk water transfers, prepaid water

meters and bottled water. Public Citizen has documented numerous cases where rates




6
 Thirst for Control, New Rules in the Global Water Grab, prepared for the Council of Canadians by Steven
Shrybman, barrister and solicitor Sack, Goldblatt and Mitchell, January 2002.


                                                   5
rapidly increase, service declines and water cutoffs increase following the takeover of

water utilities by transnational corporations.7

3.       Cal Am has indicated its intent to move toward a policy of statewide rate setting

and therefore this General Rate Case could potentially impact Cal Am ratepayers in other

districts.8 Public Citizen works closely with Cal Am ratepayers throughout the state that

have expressed concern about this proposed policy change.



C. Reasons the application, or part of it, is not justified:

1.       Public Citizen is concerned that the rate increases being requested by Cal Am

will result in rate shock and will make water unaffordable for a growing number of

households in the Monterey District.               Cal Am’s application does not address the

adequacy of the Program for Alternative Rates (PAR) to assist the potentially increasing

number of low-income ratepayers who may not be able to afford water if the proposed

rates go into effect.

2.         In a recent acquisition of a small water system in Chualar, a farm worker

community in the Salinas Valley, families, small businesses, and even the local

elementary school suffered considerable rate shock when their monthly bills escalated, in

many cases, up to 1500% when a new rate structure went into effect after Cal Am

acquired the water utility from Monterey County. The school’s bills, for example,

increased from an average of $200 per month to approximately $2000 per month. Public

Citizen, the Environmental Justice Coalition for Water and La Union del Pueblo Entero

(LUPE) found that Cal Am did not adequately notify ratepayers in Chualar of the

7
  A number of reports are listed on our website: www.wateractivist.org. I.e. Water Privatization Fiascos:
Broken Promises and Social Turmoil, Public Citizen, Water for All program, March 2003.
8
  See Updated Rebuttal Testimony of David P. Stephenson on behalf of California-American Water
Company in the Monterey-Felton Consolidation (A.04-08-012)


                                                     6
impending changes and ways to mitigate the impact of the rate increases. The

predominantly Spanish-speaking ratepayers had difficulty communicating with the

Illinois-based American Water customer service department and many could not get the

direct assistance they needed from Cal Am to address their extraordinarily high bills.

Many families, and even Chualar School, received cutoff notices. Cal Am failed to notify

Chualar customers of the PAR program, or their rights to affordable water. Public

Citizen and other groups had to intervene and help educate the community about the

CPUC rate setting process. Cal Am has since agreed to restructure the rates in order

create a more fair and reasonable rate structure for this community.

3.      Based on this experience, Public Citizen has reason to believe that other low-

income families have not been made aware of the PAR program and are not getting the

assistance and service they need through the out-of-state customer call center.

Furthermore, Cal Am has not made eligibility information about the PAR program

readily available on its website. American Water customer service representatives will

mail applications upon request, but it was not clear that this information is available in

Spanish.   Low-income assistance programs often create additional bureaucratic hurdles

to obtaining water, and families that fall behind on payments risk having their water

cutoff due to inability to pay.

4.    To mitigate this pending affordability crisis, Public Citizen recommends

implementing a policy of lifeline rates as part of this GRC to ensure that no ratepayers are

cutoff from water based on inability to pay due to poverty. A water lifeline would ensure

that a basic minimum amount of water is provided at a very low price. .

5.     Public Citizen is concerned that part of Cal Am’s rising costs are due to

inefficient management, their expensive public relations budget and lobbying costs,



                                             7
which are resulting in unnecessary costs being passed onto ratepayers. In A.97-03-052

regarding the Carmel River Dam project, the Office of Ratepayer Advocates (ORA)

raised similar concerns about the nature of the costs that Cal-Am was proposing in that

application, particularly those related to Cal Am’s Public Information Campaign. The

question then and now is whether the various (high-quality, glossy) mailings and

handouts serve a legitimate public education function, “or are more in the nature of an

advocacy effort that should not be funded by ratepayers.”9 Furthermore, the CPUC

determined in D.03-09-022 that Cal Am should track public information expenditures in

a memorandum account and then, in its next general rate case, “make a reasonableness

showing for the recovery of these expenditures and recover the reasonable costs through

a surcharge in addition to the rate adopted in that general rate case.” Cal Am’s current

application does not include a specific surcharge to recover public information

expenditures related to the proposed desalination plant (Coastal Water Project).

Therefore, Public Citizen is concerned that unreasonable costs are being passed onto the

ratepayers (and without their knowledge).

2.        Public Citizen also has concerns about Cal Am’s Special Requests #2 and #3

related to Coastal Water Project Cost Recovery. Despite Cal Am’s efforts to move

forward with the project, it remains unclear at this time when (or whether) any

desalination plant will be built. There are many unknowns in the project, one important

one being that Cal-Am does not have an agreement with Duke Energy, where the

desalination plant is intended to be built in order to subsequently use Duke’s existing

cooling water system and outfall, nor have the environmental studies been completed.




9
    (http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/29501.pdf, page 22).


                                                 8
Furthermore, no public entity has yet stepped forward to takeover the project, as required

by Monterey County Health and Safety Code (Title 10) Section 10.72.10 B:


                 All applicants for an operation permit as required by Section 10.72.010 shall:
                 A. Provide proof of financial capability and commitment to the operation,
                 continuing maintenance replacement, repairs, periodic noise studies and sound
                 analyses, and emergency contingencies of said facility. Such proof shall be in the
                 form approved by County Counsel, such as a bond, a letter of credit, or other
                 suitable security including stream of income. For regional desalinization projects
                 undertaken by any public agency, such proof shall be consistent with financial
                 market requirements for similar capital projects.
                 B. Provide assurances that each facility will be owned and operated by a public
                 entity. (emphasis added)


Cal Am has not provided sufficient assurances that it is taking active steps to pursue a

public owner, or how it will move forward with this project in light of the Monterey

County Health and Safety Code requirement that the facility be owned and operated by a

public entity.    Furthermore, without better regional planning, taxpayers and water users

in this region may end up paying for the preliminary costs (e.g. producing the required

environmental documentation) associated with the competing desalination projects in

Monterey County.       Therefore, Public Citizen does not feel that ratepayers should start

paying for the construction of a project for which they may never receive the benefits.

6.   Public Citizen is concerned about the long term viability of Cal Am, and their parent

company’s business strategy.         As part of this RWE Thames Water acquisition of

American Water Company, Thames Water Americas Managing Director James

McGivern testified that the high acquisition premium would not be passed on to

ratepayers but would instead be paid off through future growth, such as the 20-year, $600

million contract that Thames Water acquired in Stockton.10 This contract is currently



10
  Excerpts from Final Oral Argument in the Application 02-01-036, Testimony of James McGivern,
Managing Director of Thames Water Americas:


                                                 9
being challenged in the court, which may result in an order for the contact to be vacated

until the City of Stockton produces the Environmental Impact Report required by the

California Environmental Quality Act. In the face of considerable public opposition, a

number of other major long term operations contracts have been terminated (i.e. the City

of Atlanta’s 20-year water services contract) or were never finalized (i.e. New Orleans).

And now, communities from Felton to Lexington, Kentucky are seeking to reverse

private ownership altogether in order to improve accountability to local needs, improve

service, and keep costs low through tax-free municipal financing and other benefits of

public ownership.11         Given the public backlash against energy deregulation and

privatization, a growth strategy based on water privatization does not seem viable.

7. Public Citizen is concerned that Cal-Am may be under pressure by their parent

company to increase revenues, regardless of need or benefits to ratepayers or the

environmental limits of water resources in the Monterey region, and the Salinas Valley

where Cal Am has recently acquired the Chualar water system. The Salinas Valley

aquifer is currently unadjudicated, and given Cal Am’s track record of poor

environmental management of the Carmel River and the Seaside Aquifer, which may




                 “That premium is for the shareholders. It will never, ever be passed down to the
        customers of California-American, nor will the transaction costs of this merger. All of that is for
        the shareholder. And that is embedded very clearly in the proposed decision.
                 This transaction is predicated on growth. There are 50,000 separate water systems in the
        U.S., which is a situation which we're already seeing is untenable given the capital requirements of
        the industry. Large players, like ourselves, are working with communities, consolidating water
        companies so that rates can be kept reasonable and service can be improved.
                   Today, only 15 percent of water in the U.S. is provided by private companies and only 5
        percent of sewage services. This transaction is predicated on Thames Water taking a share of the
        growing water privatization services in the U.S., which I firmly believe we will achieve.
                 For example, we are the preferred bidder of a major project just up the road in Stockton,
        California where we will be working with the community there to run their water and wastewater
        services.”
11
  Please see the websites for Felton FLOW (For Locally Owned Water): www.feltonflow.org and
Bluegrass FLOW: www.bluegrassflow.org.


                                                    10
now be in overdraft, Public Citizen is concerned that Cal-Am’s pressure for growth will

result in mismanagement of this critical resource as well.

8. As documented in the Felton consolidation case (A. 04-08-012), rather than providing

benefits to ratepayers, the RWE Thames Water acquisition has actually resulted in

inadequate service (e.g. maintenance and management problems; customers directed to a

central service call center in Illinois), and declining public accountability. Ratepayers in

the Monterey District have also expressed frustration with the lack of decision making

power from Cal Am managers who routinely have to check in with their parent

company’s management before making commitments to local ratepayers.                         This has

fostered an environment of mistrust, which does not bode well for moving forward with a

solution to the water supply crisis in a way that will be acceptable to local ratepayers.

Transnational corporate ownership of Cal Am has only exacerbated this mistrust.

9. Transnational corporate ownership of water utilities also carries with it new risks that

international trade agreements could be used to circumvent local laws and regulations.

The California Coastal Commission has documented these potential threats in their report

on seawater desalination.12 The current investment case pending under NAFTA Chapter.

11 is an example of how international trade and investment agreements could impact

local decision making. In this case, the Canadian company (Methanex) is currently

seeking $970 million in a NAFTA tribunal in response to then Governor Davis’ executive

order calling for a phase-out of MTBE, a toxic gasoline additive that has polluted water

throughout the state.13 Thames Water has provided input into the negotiations of the


12
   Seawater Desalination and the California Coastal Act, March 2004, California Coastal Commission,
p.48. http://www.coastal.ca.gov/energy/14a-3-2004-desalination.pdf
13
   Corporations Draft Amended Claim Under Chapter 11 of the North American Free Trade Agreement,
Methanex Corporation v. the United States of America, United Nations Commission on International Trade
Law, Feb. 12, 2001 at 47.


                                                 11
General Agreement on Trade and Service currently being negotiated in the Geneva-based

World Trade Organization. In these communications, Thames Water singled out the

regulatory processes in the United States (i.e. the PUC) as being of concern.14 Public

Citizen’s Global Trade Watch has extensively documented the negative impact of

international trade agreements, and these potential threats should be taken into

consideration before approving Cal Am’s plans to proceed with the Coastal Water Project

using its affiliate, the Spanish desalination company Pridesa.15



D.       CONCLUSION AND REQUEST FOR EVIDENTIARY HEARINGS

For the reasons stated above, Public Citizen asks to participate as a party in all

proceedings regarding this Cal-Am application consistent with Public Citizen’s

commitment to protecting the Monterey District ratepayer’s right to clean, reliable and

affordable water. Public Citizen requests an evidentiary hearing on the matter.

                                                                 Respectfully Submitted,

                                                                 Juliette A. Beck
                                                                 Public Citizen
                                                                 1615 Broadway, 9th Floor
                                                                 Oakland, CA 94612
                                                                 Telephone: 510-663-0888
                                                                 Facsimile: 510-663-8569
                                                                 E-mail: jabeck@citizen.org

April 4, 2005
14
   Correspondence from Kathryn Oakley, Head of Political Affairs for Thames Water Plc to Ms. Ulrike
Hauer, Directorate D,European Comission Directorate-General for Trade, European Commission, June 28,
2002:
        “Our major concern with regulator processes is in the United States. We expect our recent
       acquisition of American Water Works to take up to 2 years (from the date the acquisition was first
       announced) to get regulatory clearance from state authorities. We are concerned about the length of
       time that this is taking and some of the restrictive conditions that the individual states are attempting
       to impose on us (regulation is not uniform in the US, each state has autonomy in the regulatory
       processes).”
15
   NAFTA Chapter 11 Investor-State Cases: Lessons for the Central America Free Trade Agreement,
February, 2005, Public Citizen’s Global Trade Watch.
http://www.citizen.org/documents/NAFTA_CH11_Invest_State.pdf


                                                      12
                                     VERIFICATION

       I, Wenonah Hauter, declare:

       I am the Director of Public Citizen’s Critical Mass Energy and Environment

Program and am authorized to make this Verification for and on its behalf, and I make

this Verification for that reason.


       I have read the above document and know its contents. I am informed and believe

and on that ground allege that the matters stated in it are true.


       Executed on April 4, 2005, at Oakland, California.

       I declare under penalty of perjury that the foregoing is true and correct.



                                                       __________________________

                                                       Wenonah Hauter




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