Proposed Water Rate Rules Are Dropped

California regulators have scrapped proposed rate-making rules for the state’s biggest private water companies after consumer advocates complained they were written by industry lawyers.

The action came after the Public Utilities Commission’s consumer advocate complained that the agency’s chief water regulator based the proposed rules on a document from a law firm employed by the California Water Assn. The group represents privately owned water companies that serve more than 6 million residential and commercial users throughout the state.

“It is poor judgment for commission staff and inappropriate for the commission to allow the industry it regulates to set the agenda for commission proceedings and to determine the scope of issues that will be addressed,” Dana S. Appling, director of the PUC’s Division of Ratepayer Advocates, wrote in a letter to PUC President Michael R. Peevey and the four other commissioners.

The division of advocates, a semi-independent branch of the PUC charged with ensuring that consumers pay the lowest possible water rates, learned of the industry’s involvement from an e-mail sent to PUC staff members by Kevin P. Coughlan, director of the commission’s water division.

The proposed rules were derived in part from “a draft of a document that I got from the water industry,” Coughlan wrote.

Appling said the proposed rules would have sharply limited the ratepayer advocates’ power to intervene on behalf of consumers in water rate cases. “Industry can and should be part of the process,” she wrote, “but they should not define it.”

PUC Executive Director Steve Larson said Coughlan showed “poor judgment.” He junked the proposed rules and reprimanded the water division.

Peevey also weighed in, calling the industry’s direct involvement a “rare lapse in judgment” by the water regulators and backing Larson’s decision to start the rule-making process afresh.

“The commission does its own thinking. We don’t start with utility drafts,” Peevey wrote in a letter to Larson.

Coughlan could not be reached for comment. He sent the e-mail May 8; Appling’s letter was dated May 16.

Jack Hawks, the executive director of the California Water Assn., called the dust-up a misunderstanding. He said the industry responded to a request from Coughlan to give him a list of questions about issues that might come up during the rule-making process.

“We didn’t want any misperception,” Hawks said.

The water division provides staff work for the commission, which regulates rates charged by privately owned water monopolies in much the same way that it oversees rates charged by the state’s investor-owned electric utilities.

About 140 for-profit water utilities serve about 6 million Californians in metropolitan areas including Pasadena and San Jose and small towns including Geyserville in Sonoma County and Grover Beach in San Luis Obispo County. In recent years, several small companies, particularly in rural areas, have come under fire because of contaminated groundwater or high rates charged to agricultural fieldworkers and other low-income customers.

Problems of water quality as well as conservation of scarce water resources have forced the PUC to begin looking beyond questions of whether private water companies are charging rates that guarantee an adequate rate of return, said Peter Gleick, president of the Pacific Institute, an Oakland-based think tank that deals with water and environmental issues.

Gleick noted that the quick response from Peevey and Larson showed that the PUC was taking its responsibilities and “this incident seriously.”

“The PUC has made progress in trying to bring private water companies into the 21st century by encouraging water efficiency and public transparency,” Gleick said. “This incident taints the record.”