By inquiring about a subtle detail in her water bill, Rita Benton uncovered what may amount to a multimillion-dollar debt to more than a million people in the South Bay.
In January, the Saratoga resident asked San Jose Water Company, an investor-owned water retailer that serves more than half the population of Silicon Valley, why she was billed for a service charge increase before the date set by state regulators. It was a slight hike, from $47.96 to $50.03, but she was forced to pay the bi-monthly increase twice.
Apparently, so did other customers. The company told Benton that on Jan. 1 it switched from billing service charges in advance to billing in arrears. Instead of skipping a cycle, however, the company double-billed customers—for roughly $1.8 million.
John Tang, VP of government relations and corporate communications at San Jose Water, conceded that ratepayers were charged more than they owed. To make up for it, the company offered to pay back the $1.8 million. The single largest refund would come to $436.77 cents, Tang says, while the average residential customer would get $5.70.
Benton calls the amount a gross underestimate. As the ringleader of the fledgling activist group WRATES—short for Water Rate Advocates for Transparency, Equity and Sustainability—she’d been keeping a close eye on San Jose Water and had reason to distrust the company’s calculus. Fellow WRATES member Ginny Hoerger helped Benton crunch the numbers on seven-and-a-half years of water bills and came up with a much higher total for overcharges: $13 million.
“That’s at minimum, according to our count,” Benton says. “The total may be much higher than that, which is why we need an independent review of the situation.”
By her calling attention to the oversight, a state investigation is about to get underway. But the conflict pits grassroots activists against a monied monopoly armed with high-priced attorneys.
“The irony,” Benton says, “is that ratepayers are on the hook for their lawyers while we, [the ratepayers], are left to fend for ourselves.”
The battle over the $1.8 million refund ramped up in mid-April, when Benton filed a formal complaint with the California Public Utilities Commission (CPUC), the government agency that approves all water rate hikes and has a reputation for cozy liaisons with companies it’s tasked with regulating. It took two months of waiting and signature gathering before the commission assigned a docket number to the case.
“They put it on hold for no apparent reason,” Benton says.
On its face, the delay appears strategic, Benton says. While the state put her case on hold, San Jose Water was preparing a so-called advice letter—an informal petition submitted to the CPUC requesting a change to tariffs—to refund customers.
“They think that by offering this small amount they’ll resolve this,” Benton says. “But we don’t think that’s fair, and we think they’re trying to make this go away to avoid a thorough investigation.”
In a meeting at San Jose Water’s corporate headquarters on Taylor Street, where visitors are greeted by a sprightly automated receptionist, Tang and newly hired spokesflack Jayme Ackemann dispute Benton’s calculus and characterization.
“Rita’s interpreting the issue as an overbilling,” says Ackemann, who corrected Tang not to even refer to the charges with that term. “That is, in our view, not a reflection of what it was. The tariff allows us to treat the service charge in a certain fashion, and when the issue was brought to our attention, we addressed it. But we’re still in compliance with past practice.”
However, the state’s Office of Ratepayer Advocates (ORA)—a part advisory, part watchdog agency under the aegis of the CPUC—insists that the oversight merits an independent audit. On June 23, ORA Program Manager Richard Smith urged the CPUC to reject San Jose Water’s advice letter because it “appears to raise significant policy questions and to be highly controversial.
“The fact that multiple customers were overcharged is undisputed,” Smith continued. “However, the cause(s) and magnitude of the overcharges remain unresolved by the [CPUC] and should be examined with an evidentiary record.”
ORA analyst Richard Rauschmeier acknowledges that his agency has no authority to mandate the advice letter’s rejection, although the CPUC has suspended any decision pending further review.
“The ORA, we’re not a decision maker,” he says. “We’re made up of analysts, of engineers, accountants, policy folks and other experts who issue recommendations.”
The agency’s call to deny the water company’s request is significant. Only 5 percent of San Jose Water’s advice letters in the past two years were met with a call for rejection by the ORA, Rauschmeier says.
“In terms of this being a strong case, I would say that [San Jose Water] has acknowledged in their advice letter that customers were overcharged,” he says. “So there is no dispute that a refund is due.”
As to who should be reimbursed and in what amount, that should be for regulators—not San Jose Water—to decide, Hoerger and Benton argue.
Hoerger and Benton, neighbors in an upscale Saratoga suburb, founded WRATES to address a common frustration. The two would vent to each other on walks about what they considered unfair billing practices. Despite dramatically cutting back water use during California’s dogged drought, their water bills skyrocketed.
“We see each other all the time,” Hoerger says, surrounded by stacks of invoices, regulatory reports and other records on Benton’s dining room table. “But one day we were like, ‘So about those water bills.’ That got us energized to do something.”
“Energized?” Benton chimes in. More like outraged, she suggests.
Hoerger laughs and gives a knowing nod. “You could say that,” she says. “So, right after, I walked home and began working on a model to analyze the rate increases.”
Analyzing several years of her personal water bills, Hoerger created an algorithm to decipher a confusing and complicated billing system.
“It’s not a very transparent bill,” explains Hoerger, an electrical engineer by trade. “Each customer’s water usage is different one month to the next. The bills don’t come in at the same time for everyone and it’s never the same number of days. Even year to year, it’s hard to compare because of all these variables and all this proration involved.”
Plugging each line of data from her invoices into the formula, however, showed exactly how much rates have risen for the average customer from September 2013 to September 2016. By Hoerger’s snapshot calculation, the typical customer saw a 71 percent increase—not even including drought surcharges.
“I tested it to make sure everything checked out, then called up Rita,” Hoerger says, “I tell her, ‘You have to see this.’”
“It was the first time we were able to compare apples to apples,” Benton says. “It gave us a year-to-year snapshot.”
Armed with their algorithm and a Change.org petition calling attention to the exorbitant invoices, they rallied hundreds of impassioned water customers in the late fall of 2016. Over the ensuing months, they created an informational website and began to lobby San Jose Water and the CPUC. The group also struck up correspondence with the ORA, the Santa Clara Valley Water District (SCVWD) and state and local lawmakers.
In early January, the San Jose Water critics christened themselves WRATES. By the end of that month, they celebrated their first victory when pressure from the nascent activist network prompted the water company to drop its drought surcharge.
WRATES’ activism quickly expanded in scope.
The group’s reach grew to thousands of San Jose Water customers, who were similarly fed up with what they call unsustainable and inequitable rate hikes and profiteering off of a public resource. When WRATES drummed up a cost comparison between San Jose Water and its peers throughout the state, the group found that the local utility is one of the most expensive in California.
WRATES found that the San Jose-Great Oaks Water Co.—another investor-owned utility—charges 87 percent less than San Jose Water. While public agencies, such as the San Jose Municipal Water System and the Gilroy Community Service Department, charge less than half the rate. Outside the region, the cost comparison is even starker. San Jose Water charges 386 percent more than the city of Folsom and 396 percent more than the El Dorado Irrigation District.
Tang takes issue with WRATES’ comparisons. For one, each of those jurisdictions buys its water from different sources, which affects the cost to customers. Capital improvement changes the rates, too. If an agency needs to upgrade an aging system, that can result in a higher price for customers.
“Comparing rates is notoriously difficult,” Tang says. “It depends on a number of factors that cannot be just easily deduced.”
Private water companies have long played a key role in California, expanding infrastructure to new developments outside of cities. Industry analysts say they will continue to meet the public’s need as government funding continues to fall short of what’s required to make billions of dollars in costly upgrades.
Yet more than ever, the companies are neither small nor local.
In the century-and-a-half since its founding, the San Jose Water Co. has grown from two water tanks and 400 connections to a monopolized corporation that sells water to more than a million people in Santa Clara Valley. In 1985, the San Jose Water Co. reincorporated as a subsidiary of SJW Corp. and again in 2016 as an affiliate of SJW Group, a Delaware corporation.
Though the CPUC regulates the San Jose Water Co., it has no authority over SJW Group or related corporations, including SJW Land, the Texas Water Alliance and SJWTX. Group directors and officers are shared between SJW Group and its subsidiaries, however, allowing them to transfer money and land from one entity to another.
While ratepayers get squeezed—and overcharged, as WRATES discovered earlier this year—members of the company’s board of directors get $1,000 just for showing up to each meeting. Each person on the 10-member board also enjoys generous stock awards, retainers and service fees. In 2016, the total annual service fees paid to each individual board member topped out at $98,000, according to filings with the federal Securities and Exchange Commission (SEC).
Meanwhile, executives in San Jose Water’s corporate office take home seven-figure compensation packages, multiple retirement plans and hefty bonuses.
San Jose Water CEO W. Richard Roth’s salary grew from $676,000 to $767,936 from 2014 to 2017. His cash bonus target went from $169,000 in 2014 to $192,000 this year, according to the filings submitted by the company to the SEC. Though the company set his bonus target to $184,600 in 2016, his actual payout came to $235,365, per the SEC. From 2014 to 2016, Roth’s total compensation—including salary, bonuses, stock awards and other incentives—totaled nearly $6.4 million. The current value of his pensions comes to more than $7.7 million.
The next four highest-ranking execs under Roth take home similarly substantial pay and benefits, from about $696,623 to $1.1 million, according to SEC records filed this year. Meanwhile, profits continue to soar.
Dividends for SJW Group have increased in each of the last 49 years, per SEC filings. In 2016, a drought year, the investors who own the San Jose water retailer’s parent company saw stock prices nearly double.
That’s a large part of what’s driving constant rate increases—salary, benefits, labor and other costs for the company’s administration, including rent and taxes.
Every three years, the private water utility petitions the state for another rate increase. The process generally takes about a year-and-a-half of negotiations between the company, the state and ratepayer advocates before the CPUC reaches a settlement. In 2012, San Jose Water requested a 44 percent cost increase through 2018, which the state negotiated to a lower rate after the ORA determined that the company overestimated its revenue needs and costs of construction, labor and conservation.
In the past four years, the CPUC has allowed San Jose Water to up its rates by an average of 20 percent a year.
“People can’t keep up at that pace,” Hoerger says. “It’s not sustainable.”
By submitting advice letters between triennial rate increases, San Jose Water passes on even more costs to customers. In this year alone, the CPUC approved four advice letters that allowed San Jose Water to raise customer costs more than 12 percent. The company tried to add another charge that would bring the total to nearly 16 percent. The state denied that request, but the company is appealing the decision.
San Jose Water says it needs to raise the rates because the SCVWD kicks the cost of infrastructure upgrades down to retailers. Meanwhile, the company needs to fund capital improvements of its own, including upgrades to wells, computer systems, reservoirs, tanks, 25 miles a year of water mains and the Montevina Water Treatment Plant.
“The rest of it is to fund infrastructure investments, to purchase chemicals, labor and all the other things that you would need to run a business,” Tang says. “We either pay for it now or pay for it later.”
Benton cautions that the incessant water bill hikes combined with the region’s sky-high housing costs will lead to more people falling behind on their bills.
“That’s an injustice for everyone,” Benton says.
Come Jan. 1, San Jose Water has to submit its next petition to raise rates. But this time, the proceedings will face greater scrutiny from local ratepayers, Benton and Hoerger promise.
WRATES members question whether the CPUC is upholding its mission to ensure that private utilities provide reliable service at reasonable rates.
“There’s nothing reasonable about this,” Benton says.