San Jose Water Company’s latest pitch to raise rates comes before state regulators this week, and irate customers are gearing up for a showdown.
The investor-owned utility, which overbilled ratepayers by at least $1.8 million last year, asked the California Public Utilities Commission (CPUC) to let it boost returns on infrastructure investment from 9.43 percent to 10.75 percent. But Administrative Law Court Judge Karl Bemesderfer weighed that request against testimony from ratepayer advocates and, in a Feb. 6 ruling, deemed 8.3 percent a more reasonable rate.
Then, as one observer put it, all hell broke loose.
Lobbyists and lawyers repping San Jose Water Co. and three other investor-owned water utilities flocked to Sacramento in an effort to sway the five-member CPUC in a series of private ex parte meetings.
Meanwhile, industry groups—the Silicon Valley Organization and Santa Clara and San Benito Counties Building and Construction Trades Council among them—bombarded commissioners with strongly worded missives denouncing the judge’s decision.
In a March 9 letter, California Water Association Executive Director John Hawks blasted Bemesderfer’s proposal to deny the water companies’ sought-after rate increase as “unjust,” “fraught with errors” and “obvious misstatement of facts.” He accused the CPUC of bowing to political pressure from “the legislature, the media and certain activist groups dominated by affluent and high-volume water users.”
The scolding apparently paid off.
Commissioners agreed to let the water companies plead their case once again in an 80-minute hearing that took place last week in Sacramento. Grassroots activists said the March 15 hearing made a mockery of due process by continuing proceedings even after a judge rendered his decision.
“There appears to be a double standard,” said Saratoga resident Rita Benton, who co-founded an industry watchdog group called Water Rate Advocates for Transparency, Equity and Sustainability (WRATES). “It’s OK if the water monopolies and their lobbyists influence the commission, but it’s not OK if the ratepayers speak out. The private water utilities are saying the administrative law judges should not be trusted to do their job.”
Come Thursday, the CPUC will vote whether to hew to the industry’s demands, which would generate an additional $7.6 million in revenue for San Jose Water Co. this year, or abide by the judge’s ruling. The meeting will be livestreamed here.
The rate increase being considered this week comes as San Jose Water also petitions for a general rate hike. In a case that will take a year of review to finalize, the South Bay utility is asking the CPUC to let it up customers’ water bills by 18.6 percent through 2021 for a revenue bump of $69.1 million.
Water bills are surging nationwide as utilities try to fix aging pipes, but at nowhere near the pace of San Jose Water Co.
The South Bay utility has already upped its rates by 73 percent for the typical customer since 2014, according to a WRATES analysis. That’s an increase of more than 20 percent a year—far higher than the national average of 5.5 percent, which according to the U.S. Department of Labor is itself is three times the rate of inflation.
Meanwhile, the company is expanding its reach. San Jose Water’s parent corporation, SJW Group, announced last week that it plans to merge with Connecticut Water Service in a deal that would make it the third-largest investor-owned water utility in the U.S. That would give it an equity value of $1.9 billion and a customer base of 1.5 million in California, Maine, Connecticut and Texas, according to news reports.
The $750 million merger, which is pending regulatory approval, is also expected to boost dividends, according to an SJW Group announcement that predicted “mid- to high-single digit accretion in earnings per share over the next couple of years.” That’s more good news for investors and in line with a longstanding trend for the multi-state corporation. SJW Group is part of a rare breed of companies called “dividend kings,” so named for surpassing 50 consecutive years of payout growth.
SJW Group’s new CEO Eric Thornburg, who makes a $750,000 annual base salary, told the Mercury News that the tie-up would strengthen the company’s financial standing even further and would reduce capital costs, making it easier to upgrade old facilities.
The industry has been able to enjoy such positive outlooks because of a favorable regulatory climate, according to the Office of Ratepayer Advocates (ORA), the CPUC’s independent consumer protection arm. It also stands to gain from recent federal tax cuts that slashed the corporate tax rate from 35 to 21 percent, as SJW Group noted in a recent U.S. Securities and Exchange Commission filing,
Judge Bemesderfer underscored the ORA’s argument in his February ruling, saying that, “risk-hedging and risk-spreading mechanisms adopted by [the CPUC] over the years have effectively guaranteed that the applicants will earn their allowed returns on rate base, making investment in their common equity nearly risk free and their [returns on equity] should be adjusted downward to reflect this fact.”
In pleading for higher returns on equity, however, SJW Group subsidiary San Jose Water Co. plays another tune. And the California Water Association argued that point on its behalf in its letter of protest, calling the ORA’s assertion “ridiculous” and claiming that the state’s regulatory environment makes investment in the industry fraught with risk.
“No state has the severe combination of water supply, water quality and operational risks that utilities experience in California,” Hawks wrote in the letter. “This fact should be paramount when considering company-specific risk factors.”
Benton—whose group WRATES recently teamed up with its SoCal-based counterpart, the Coalition for CPUC Water Rates Reform—said regulators should put consumer protections ahead of industry interests.
Otherwise, she said, they can expect a “consumer rebellion” over assiduous rate hikes.