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Lancaster city officials at odds with CPUC

Cover Design by Andrew Nunez (88663)
Cover Design by Andrew Nunez

Lancaster city officials say they are fed up with unfair utility rates. With the drought serving as a reminder to conserve as much water as possible, city officials last week expressed displeasure and dismay toward a decision by the state Office of Ratepayer Advocates (ORA) which recommended that water rates be raised for some Lancaster residents who claim they already pay more than the prevailing market value for water.

City officials said they had negotiated an agreement this year with the California Water Services Company (Cal Water) that would have reduced a reported disproportionate increase in rates down to a more manageable 6.5 percent hike in water bills. But the implementation of the negotiated agreement was contingent upon the approval of the California Public Utilities Commission (CPUC) which received a completely different calculation from the ORA which has called for an immediate rate increase of 37.5 percent. To date, no explanation for the change of heart has been given to Lancaster officials.

City officials say they have repeatedly requested to meet with representatives of the ORA regarding the decision, but the discussion may be over because the decision is non-negotiable.

Lancaster officials wanted to meet with the CPUC last week, but CPUC rules prohibit the involved parties from embarking on any discussion and/or re-negotiation regarding the matter. In effect, city officials directly charged with representing their constituents are, by law, prohibited from speaking before the same board which made the controversial decision. Cal Water is the state’s largest for-profit water utility, supplying water in various capacities to counties throughout the state.

‘Betrayal of public trust’

“This is a fundamental betrayal of the public trust by an entity that was created for the sole purpose of preventing such price gouging by utility companies,” said Lancaster Vice Mayor Marvin Crist. “I am astounded at the complete abandonment of these Lancaster ratepayers by a state agency that was intended to protect them. While the Office of Ratepayer Advocates, a misnomer to be sure, failed to protect our residents when they issued their misguided recommendation, the city council is committed to ensuring that these residents have their concerns properly addressed by state agencies. As such, we will continue to aggressively pursue an equitable outcome for ratepayers in our community.”

Assemblyman Steve Fox (D-36th District) in July called for the California State Auditor to examine Antelope Valley water rates and was told that Cal Water rates in the Antelope Valley were “justified and reasonable,” but that answer has not satisfied Lancaster residents. The audit, titled “Antelope Valley Water Rates: Various Factors Contribute to Differences Among Users,” compared Cal Water rates in Lancaster with rates and operations with three local municipal utilities: Los Angeles County Waterworks District No. 40, Palmdale Water District and Quartz Hill Water District. Lancaster officials take umbrage with the term “reasonable” because they have traditionally paid since 2011 anywhere from two to three times as much for water service as do neighbors just across Avenue M, which is the border separating Lancaster and Palmdale.

The audit said Cal Water has complied with “all state rules” requiring that rates be justified and warranted through the process managed by the CPUC. Unlike municipal utilities, the audit found, “investor-owned utilities such as Cal Water … must justify their proposed rates by presenting cost information to the commission during general rate case proceedings, which take place every three years.” Further, the commission has “broad authority over investor utilities, including the authority to inspect and audit their records” and, in terms of Lancaster’s argument that the rate increase was unfairly levied, water rates charged by Cal Water between 2011 and 2013 were “approved by the commission” and were properly implemented through the general rate case process.

In the analysis, the auditor found that rates for the four utilities examined had risen over the three-year period and were explainable. “Other factors specific to each water utility can also contribute to variations in their costs, including the sources of water and energy costs to pump water,” the audit stated.

There are different reasons, the audit further explained, why Cal Water and the municipal utilities have varying rates. The municipal utilities—unlike Cal Water—are said to have other sources of revenue that allow them to keep their water rates somewhat lower. Cal Water is investor owned and pays fees and taxes that are designed to benefit the cities and counties in which they operate. The audit said municipal utilities “receive revenues from monthly water rates and from additional sources, primarily taxes based on the assessed value of properties in their service area. These additional revenue sources help … cover their costs and, therefore, can contribute to lower monthly water rates for their customers. Investor utilities also must pay property and franchise taxes and business license fees.”

Conserve water yet pay more?

Lancaster Mayor R. Rex Parris wants a better explanation. “Make no mistake, the city council is committed to ensuring that the voices of these residents are heard,” Parris said last week. “We will not take the Office of Ratepayer Advocates recommendation lying down, and will unequivocally fight for the interests of our citizens. The city council strongly recommends that the CPUC accept and approve the legitimate, negotiated agreement between the city of Lancaster and Cal Water which would altogether avoid this unconscionable spike in water rates for many Lancaster residents.”

Cal Water’s Antelope Valley district is reportedly the smallest of the aforementioned utilities, serving about 1,500 customer connections in its Lancaster, Lake Hughes, Leona Valley and Fremont systems. Since there are fewer service connections in Lancaster, the CPUC can raise the monthly bills because, the audit stated, such water utilities can “spread their fixed costs across fewer water customers.”

Customers naturally question the timing of these rate increases, particularly when they’ve been told to conserve as much water as possible during the on-going drought. Now the rates have been increased because, as Lancaster officials attest, Cal Water is not selling enough water locally to support its operation.

Beginning in March 2013, Lancaster customers received a surcharge on their bill so the company could recoup revenues lost when users conserved water in 2012. Add to this increase the meter-reading charges and subcharges, and residential water bills in one year have skyrocketed in Lancaster.

To counter this claim, Cal Water said last month that it is pumping in more groundwater to reduce the amount of the higher-cost imported water it must purchase; the company is also requiring all employees to form teams to find areas in which operating efficiency can be improved or see a reduction in cost.

“Our priority is to provide our customers with reliable, high-quality water service,” said Martin Kropelnicki, CEO of Cal Water. “In maintaining reliable water infrastructure and ensuring that we always meet or exceed all state and federal water quality standards, we are constantly also working to operate as efficiently as possible to minimize the cost impacts to our customers. We are committed to being a good partner by operating transparently and always providing excellent service to our customers.”

The new price tag for water could have been steeper. Cal Water in 2013 requested a 59.7 percent increase for this year, an idea which infuriated residents in west Lancaster.  The average residential bill last year exceeded $140 per month; the near 60 percent increase would have seen some water bills top $225 per month by 2016. Some residents reported bills last year as high as $600 levied during the hottest, driest months of the year. One Lancaster resident, Sheila Phillips, told the Antelope Valley Times that in 1988 her water bill was only $22 every two months. Now it’s well past $100 for one month. She thought about lawn sprinklers, but the installation was too expensive. “If you don’t take care of your lawn, the city code enforcement gets you,” she said. “You’re darned if you do, and darned if you don’t.”

Lancaster grassroots protest

Today many residents of west Lancaster are having difficulty paying their existing water bill, and with the new charges levied by Cal Water, they’ll be paying for water they have not used since conservation methods were put into place two years ago. A grassroots campaign is ongoing called “AV Residents for Reasonable Water Rates” with participants hoping that someone will listen and help ease what they consider to be an unfair economic burden on residents. What may be particularly upsetting for Lancaster residents is that many homeowners have replaced their lawns with drought-tolerant landscaping which doesn’t require anywhere near the amount of water as would traditional grass.

Our Shepherd Evangelical Lutheran Church last year did its part to conserve water and opted for low-water use landscaping. Cal Water sent representatives there to suggest how best to landscape, preserve the beauty of the property, and to save water. “Yet our bills are still off the charts,” Jay Anders, facilities manager at the church, told the Antelope Valley News. “We are a non-profit, and they’re killing us. We now have to budget $5,000 for water,  and our yearly operating budget is only $75,000.”

Price hikes now commonplace

The price of water among the nation’s 30 largest cities has increased in the last year at a rate faster than inflation. According to Circle of Blue’s latest annual survey of water rates, prices have increased an average of 6.7 percent in the 30 largest metropolitan areas, a slower rate than in recent years, but well above the 2.1 percent increase in the U.S. Bureau of Labor Statistics’ Consumer Price Index for 2012. The median increase in water prices was 6.2 percent.

Circle of Blue is a research organization composed of scientists and journalists who provide “on-the-ground” updates about the world’s natural resource crises.

The price hikes may be related to the dearth of federal grants for municipal water infrastructure—mostly for sewage treatment plants to meet Clean Water Act standards—which effectively “dried up” in the 1980s. Now the burden of payment for water is shouldered almost entirely by cities and their ratepayers.

The Environmental Protection Agency reported last year that American public drinking water systems will need to spend $384 billion through 2030 to maintain service; two-thirds of this price tag would be for replacing and repairing the vast web of aging water pipes than run through a city.

From 2010 to 2011, the first year an annual comparison was possible in Circle of Blue’s survey, water prices increased in large cities an average of 8.9 percent. It dropped slightly to 7.5 percent in 2012. The biggest price increases last year took place in Austin, Texas (22 percent) and in Tucson, Ariz. (17.6), both regions hit hard by droughts. What has happened is that as utilities sell less water, the tried-and-true business model has faltered. The model was based on water sales which, according to Circle of Blue, account for roughly four out of every five dollars in utility revenue, on average. Most costs, however, have to be paid regardless of how much water is sold. This imbalance between fixed costs and variable revenue is where the problem lies … and why pocketbooks are being stretched so thin.

Lancaster residents are not the only ones in Southern California to pay more for water. The Los Angeles Department of Water and Power (DWP) has repeatedly over the past 10 years charged more for water, and has also increased its capital spending by 55 percent since 2011. The rate hikes are supposed to generate new funds to pay for a system to capture stormwater, replace near century-old water mains, and be used for federally mandated reservior covers. The DWP is cleaning up two World War II-era pollutants in an acquifer underneath the San Fernando Valley and also wants to invest in recycled water. At the beginning of the year, the DWP was charging $92.35 per every hundred cubic feet of water.