The state's Public Utilities Commission has denied a request by California American Water Co. to make Monterey Peninsula customers pay for $6 million the company says it lost by discounting bills in cases of sudden, expensive water leaks.

In a decision dated Nov. 16, the utilities commission declared Cal Am failed to supply "pertinent information," suggesting the company could make the request again, but should include a broad swath of data about reported leaks, meter functions and where and how leaks were occurring.

Cal Am had asked the PUC in October to allow it to collect a 4.26 percent surcharge to customers so Cal Am could recover its "leak adjustment" losses between 2007-2011.

The timing of the company's request hit a raw nerve with customers already experiencing sky-high water bills.

"Over the course of 2012, public reports of high bills — bills that are higher than usual without any known reason or explanation for the increase — have reached a crescendo on the Monterey Peninsula," wrote Dave Stoldt, Monterey Peninsula Water Management District general manager, in a Nov. 6 letter asking the PUC to investigate the phenomenon.

The Herald has documented cases of numerous Cal Am customers on the Peninsula who have been hit in recent years with sudden, high monthly water bills — some in the thousands of dollars — that seem to defy explanation.


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In some of these cases, Cal Am has offered customers a one-time bill reduction to help offset the unexpected expense. Although the company says the culprit is usually a leak the customer was unaware of, Cal Am officials have said bill adjustments are sometimes given to customers even when no leak is found.

However, customers say that even with the reductions, some bills still add up to hundreds and even thousands of dollars.

Although PUC has agreed that Cal Am has the right to recover losses resulting from the leak adjustments, officials wrote in their decision that a hearing should be held to determine how that should be done.

"Given the contentious nature of this filing and the policy issues it raises, an examination of the facts and policies should be considered through a formal proceeding," the commission stated.

The PUC's own Division of Ratepayer Advocates and 41 Cal Am customers filed protest letters after Cal Am requested the surcharge, the decision stated.

In an emailed statement, Cal Am spokeswoman Catherine Bowie said, "It is important to recognize that ... the CPUC affirmed that our bill adjustment policy is in the best interest of our customers. We are reviewing (the commission's) rejection of our advice letter application and will evaluate what we believe to be the most appropriate mechanism to resubmit for recovery of customer bill adjustment funds."

The PUC's ruling said Cal Am's method of trying to recoup the leak adjustments was different in Monterey County than methods used to recoup "uncollectible amounts" in other areas.

"Cal Am's request to recover the entire amount attributable to customer billing adjustments through a surcharge on customer rates raises a moral hazards issue," the PUC's decision warned.

In economic terms, a moral hazard exists when a financial deal includes incentives for parties to act against the interests of others involved.

Cal Am's $6 million in losses "amounts to more than $100,000 per month on average over that period," Stoldt said in the Peninsula water district's letter to the commission.

The surcharge, he wrote, "is borne by all ratepayers, residential and non-residential, water-wise and water-wasters. The district believes such a large periodic adjustment warrants greater due diligence by Cal Am to try to better identify the cause and reduce the number of occurrences."

In its request, Cal Am provided little in the way of data to back up the company's claim that it lost $6,235,488 during the last five years.

The PUC said the kind of "pertinent records" Cal Am should supply include customer meter records, information about meter testing and repairs, filed inspection results, leak reports, location and water usage patterns of customers who asked for bill reductions, and a "census of all customer service meters by customer class, size, type, year installed and manufacturers' warranted accuracy when new."

Julia Reynolds can be reached at 648-1187 or jreynolds@montereyherald.com.