Jan. 14, 2013
Tim Dewar, firstname.lastname@example.org
Almost a year into a three-year penalty phase, the average Golden State Water Company (GSWC) customer in Ojai has $59.40 more in their pocket. In March 2015, when the refund period ends, those customers can expect to have gotten $194.40 — or $5.40 per month — knocked off their bills.
The refunds are part of a multi-million dollar settlement between Golden State Water and the California Public Utilities Commission (CPUC), the agency charged with regulating utility companies that operate in the state.
Throughout its operating area, GSWC will refund a total of $9.5 million. Current customers in GSWC’s Ojai service area will split $986,463.
The settlement also mandates a rate-base reduction of $2.5 million, a $1 million fine to the state and future audits and oversight designed to prevent further mismanagement by the company.
The settlement stems from a 2007 CPUC investigation that found significant problems with GSWC’s contracting practices dating back to 1989. In May 2003, GSWC officials learned that two senior executives had awarded Richardson Engineering Company contracts that violated GSWC’s competitive bidding protocol.
In October 2003, GSWC fired those executives. One month later, an outside attorney — who was hired to look into the matter — told GSWC that Richardson had received approximately 100 contracts in excess of $20 million since the early 1990s, and many were in violation of its procurement policy.
In 2004, the engineering firm GSWC hired to review a sample of those contracts reported that of the 22 contracts sampled, GSWC paid above fair market value on six.
At that time, GSWC officials decided they were not required to report these incidents to the CPUC and continued to include the overcharged contracts in rate-base filings. This, according to the settlement agreement, “exposed GSWC’s customers to unjust and unreasonable charges and up to $31 million of past ratepayer harm.”
In February 2007, a senior Golden State Water Company official informed the CPUC about the internal investigation and the company’s failure to disclose the information to the commission. This prompted the CPUC to conduct its own investigation.
“What was troubling about these allegations was not only that the contracts were tainted with favoritism and larded with excessive costs,” explained CPUC Commissioner Michael R. Peevey, “but also that the company apparently made a deliberate decision to not disclose these problems to the commission. What came to light was a disturbing pattern of favoritism and other improper practices in Golden States contracting for capital projects. This was a serious problem for the ratepayers because Golden State’s rates for water service are set based on the cost incurred by the company. Typically all the costs paid by the company whether for capital products or water supplies or even for office equipment, are passed on to homeowners and other ratepayers in their water bills.”
GSWC disagreed with many of the CPUC findings, including that its failure to report the overcharges resulted in harm to ratepayers and that customer rates were impacted by the excess costs associated with the REC contracts. The report, however, did acknowledge that GSWC cooperated fully with the Commission’s staff during the investigation.
In addition to the monetary remedies and the fine, GSWC will also be subject to a series of three annual audits on its contracting practices over the next 10 years and it must provide sworn testimony documenting its efforts to improve internal controls as part of its next two general rate cases.
“This was a very, very ugly matter on a number of fronts,” noted CPUC Commissioner Timothy Alan Simon, “based on the allegations and what was disclosed by the whistleblower. It even got to the point where there were certain racial references that were made that, in my opinion, were blatantly offensive and I think not a good reflection on Golden State Water.
“The good news,” Simon added, “is I believe Golden State gets it. I think they are moving forward in a very effective and prudent fashion to remove what appears to be a culture of deceit, a culture of less-than-transparent operations within their company and in moving forward I commend them for weeding out these issues.”
Although he was pleased that GSWC was held accountable, Ojai City Manager Rob Clark said this was a perfect example of why so many in Ojai — and in other cities served by GSWC — have a hard time trusting the regulatory and rate-setting processes when it comes to a privately-owned utility.
“We were glad they were held accountable for their misdeeds and that the CPUC made it right for our ratepayers,” Clark noted, “but I don’t think the community has much confidence in the CPUC process. They accept input and they come out and listen to us and all that, but the fact that their rates are so much higher than other districts in the same watershed and that they were able to do these things makes us think the process is just not effective. A locally-run, locally-elected board is much more transparent and accountable to public.”
The city of Ojai, which holds the franchise agreement allowing GSWC to provide water service to its residents, is supporting local efforts to investigate the possibility of purchasing GSWC’s assets in its Ojai service district and having Casitas Municipal Water District take over providing water service to GSWC’s approximately 2,800 local customers.
The CMWD is expected to announce sometime this month whether it plans to move forward with the takeover and the amount it estimates voters in GSWC’s Ojai service area would need to approve in a bond measure to cover the cost of purchasing the operation.