San Jose’s Water Rate Hike: Paying for Pipes before They Pop

Earlier this month a water main burst at the UCLA campus, wasting 8-20 million gallons of precious water during the worst drought in recent history. Some years ago, a similar thing happened to a San Jose Water Company water main, ironically, in front of the Santa Clara Valley Water District headquarters. The break blew the tops off of cars in the parking lot before they were able to close the nearest valve. It created a huge mess, causing traffic jams and interrupting water service for Almaden Valley. Besides the water damage to Water District employees’ cars, the cost of the pipe failure was felt in lost time and inconveniences to the community at large, not to mention the volume of wasted water.

San Jose Water Company proposed in 2012 to increase rates nearly 40 percent over three years, based on plans to spend $90 million for new and replaced pipelines and appurtenances. Customers and advocacy groups like the League of Women Voters and the Sierra Club met this proposal with great wrath. A letter writing campaign was launched and a public meeting was held in the San Jose City Council chambers to allow for some dialogue and to vent some of the vitriol in the community. One presentation was from Richard Rauschmeier, an analyst for the Office of Ratepayer Advocates (ORA), who tried to protect people who had reduced their water consumption from being penalized by the proposed rate increase—which made up for reduced revenue collected by the investor-owed water company.

When the uproar about the proposed rate increase began, I downloaded the report from the DRA web site. This 280-page report is an incredibly detailed review of every financial aspect of the operations of San Jose Water Company. What I learned from reading this report was that this proposed rate increase was, to a large degree, tied to a construction schedule for a $75 million expansion of the company’s water recycling infrastructure. I had been waiting more than a decade for our largest water retailer to begin actively participating in the marketing and distribution of recycled water. At this point in time, all recycled water infrastructure constructed in the service area had been built by the city of San Jose to conform a flow cap mandated by state and federal regulators to protect endangered species in the South San Francisco Bay.

Normally, the League of Women Voters and the Sierra Club promote water recycling, water use efficiency and pollution prevention as opposed to relying only on dams and inter-basin transfers for a reliable water supply. I realized that, in this case, possibly no one in these two organizations had actually read the DRA's report.

After the presentations in council chambers, I spoke to Rauschmeier, from the ORA, about his deletion of the proposed water recycling capital projects in the rate proposal. His rationale followed a strict interpretation of Proposition 218 (Right to Vote On Taxes Act) passed by state voters in 1996. The law mandated that utility rates and fees be based on the benefits to each user class. Since residential users were not customers intended to be connected to these new recycled water pipelines, he deleted all these proposed expenditures from the proposal, thereby lowering the recommended rate increase to 9.4 percent over three years.

It did not seem to matter to Rauschmeier that reducing the potable water demand and replacing it with recycled water would benefit all water users in the service area, making scarce supplies more available to everyone. During the current drought, this point seems more obvious than ever. His report also failed to take into account that replacing aged pipelines prone to failure would avoid inconvenience costs to the community at large and the potential waste of precious water.

After two years of negotiating with the PUC, a 15 percent rate hike has been approved, retroactive to the beginning of 2013. This will probably raise the average monthly water bill from $70 to about $90.

Pat Ferraro served as an elected member of the Santa Clara Valley Water District from 1972-1995 and later served as executive director of the Silicon Valley Pollution Prevention Center. He is currently an adjunct professor at San Jose State University and Santa Clara University, lecturing on water law and policy and water resources management.

Pat Ferraro served as an elected member of the Santa Clara Valley Water District from 1972-1995 and later served as executive director of the Silicon Valley Pollution Prevention Center. He is currently an adjunct professor at San Jose State University and Santa Clara University, lecturing on water law and policy and water resources management.

3 Comments

  1. You “spoke to Rauschmeier, from the ORA, about his deletion of the proposed water recycling capital projects in the rate proposal. His rationale followed a strict interpretation of Proposition 218… Since residential users were not customers intended to be connected to these new recycled water pipelines, he deleted all these proposed expenditures from the proposal”.

    Rather than strict, that interpretation could be seen as tortured. In Griffith vs. Pajaro in the Sixth District Court of Appeal in San Jose last year,

    http://caselaw.findlaw.com/ca-court-of-appeal/1646971.html

    the court quoted its finding in an earlier case, “At present, the strategy is to use recycled wastewater, supplemental wells, captured storm runoff, and a coastal distribution system. The purpose is to reduce the amount of water taken from the groundwater basin (for example, the amount taken from wells), by supplying water to some [coastal] users.   The cost of this process is borne by all users, on the theory that even those taking water from [inland] wells benefit from the delivery of water to [coastal users], as that reduces the amount of groundwater those [coastal users] will extract…” The court upheld that strategy.

  2. SJWC does own and operate about 17 miles of recycled water infrastructure. The most recent projects in the GRC were not approved by the CPUC. A lot of other water conservation projects requested by SJWC were also not approved.

  3. Doesn’t every utility have infrastructure upgrades built into their rates – just as any other ongoing costs? In a good business practice water customers have been paying for these upgrades all along.

    Since SJWC is a private business how much can we look into their financials to ascertain that the rate increases are to be used as stated and can past financials be reviewed to determine whether there aren’t other upgrades this increase will be used for. Like extra employee benefits – Mr. “Part-time work – Life time perks?”