"Federal, state and local officials on Friday (June 21, 2013) celebrated the start of the largest dam removal in California history, calling it a crucial environmental restoration project that could serve as a precedent for other dams in the state and the nation.
The $83 million project will be paid for by Cal Am customers, who will cover about $49 million of the cost; federal and state grants; and private donations."
Monterey Herald June 22, 2013

A Brief History

San Clemente Dam has been a crucial part of the water supply system of the Monterey Peninsula since 1921. It was used to increase and maintain a steady water supply. In conjunction with a second dam—Los Padres constructed in 1948 – the Carmel River served the thirsty Peninsula. Cal Am purchased both dams and all other water facility assets in 1966. All dams lose usefulness through silt accumulation. Any responsible water agency will have either a silt management plan to extend dam usefulness, or a plan for supply replacement. Cal Am has never had a silt management plan for San Clemente, and does not have such a plan for Los Padres. The only other option is a plan for new supplies.

Cal Am’s history is one failure after another. The MPWMD also tried, but failed with two voter rejections in 1980s and 1990s. Fast forward to the 1990s. San Clemente Dam was about 95% useless because of silt build-up. Several studies by the State Division of Dams determined San Clemente to be a seismic and flood threat. And in 2003 Cal Am discontinued all water diversions from San Clemente. In other words, the dam became totally useless for water supply purposes. The only use was to hold back the silt. The seismic threat was about dam failure, which could release a mud wall downstream. Property owners, particularly those within five miles of the dam, faced huge losses. Plans were made by Cal Am to buttress the dam, to build a second dam on front, to strengthen and prevent the threat of seismic failure. Cal Am would fix its liability for $49 million.

Others entered the picture, mainly to remove the dam and reroute the river. “Others” included federal regulators, sport fishing and environmental interests. Costs increased to $83 million. After many meetings, Cal Am ultimately agreed to mixed financing – Cal Am for a cap of $49 million, and others to pay the $34 million difference with state and federal grants, and private donations.

A key Cal Am question was how to recover its costs. Cal Am owned the dam. It transitioned from an asset to a liability. As an asset, it contributed to the development of the Peninsula and the quality of life we have today. As a liability, it threatened downstream property owners and the river ecology. Many downstream properties were not Cal Am customers. Cal Am’s solution was to charge its customers under the guise that demolition was construction. That no dam was a water supply project. That ratepayers should pay and investors should not. Furthermore, some downstream non-customers would benefit and not pay for removing the seismic and flood risk.

Enter The CPUC

Cal Am filed its application with CPUC in September 2010. The publicity in 2011, and continuing to this day (see Herald quote above), was all about Cal Am costs of $49 million, and grants of $34 million. Unmentioned was additional $26 million of Cal Am costs. Touted as a great partnership for wide public benefit and with wide public support, the additional $26 million was conveniently ignored, in public. Cal Am filed an application with the CPUC in late 2010. Cal Am requested recovery of $74 million from ratepayers – $49 million for construction, and $26 million for pre-construction costs, to be recovered over 20 years. Then began more than a year of filings, final EIR, public comments, cost and financing analyses, evidentiary hearings, responses and repetitive input by Cal Am.

In November 2011, the judge hearing the application issued a Proposed Decision with the following declarations:

• The Dam is not useful, and has not been useful for many years. Specifically, the definition of a useful utility asset is one that provides direct and ongoing benefits to customers and … San Clemente Dam has not done this since the 2002/2003 water year.
• The Dam does not provide any benefit as an emergency water source because it is not presently connected to do that…
• The Dam buttressing proposals Cal-Am had pursued since 1999 were at all times imprudent. The proposals could not have increased Cal-Am’s water supply and would not have satisfactorily resolved safety and environmental concerns.
• Cal-Am’s pursuit of Dam buttressing as its preferred alternative through three EIRs was not prudent in light of information available to its management at the time.
• Shareholders rather than ratepayers should be responsible for the costs tracked in the San Clemente Dam memorandum account (for approximately $26 million)…based on DRA’s audit and also on the Commission’s well-established principle that ratepayers are required to bear only the reasonable costs of a useful plant that provides direct and ongoing benefits.
• Cal-Am should be authorized its incremental cost of debt as a carrying charge but not an equity return for its shareholders. They reached this conclusion because (1) the Project will not provide utility service to customers; (2) in the Coastal Water Project proceeding, A.04-09-019, Cal-Am estimates it’s ratepayers will face substantial rate increases in the next few years in order to fund Cal-Am’s cost of obtaining additional water supply; and (3) granting Cal-Am an equity return (here) would more than double the estimated surcharge.
• The Dam does not provide any benefit as an emergency water source because it is not connected to do that.
• Prudent reservoir management by a dam owner would require monitoring of the reservoir sedimentation; it appears that Cal-Am did no sedimentation surveys or had any sedimentation management plan from the time it acquired the Dam in 1966 until … a survey in 1996.
• A reserve for decommissioning or retiring the Dam was never established.
• Cal-Am misled the Commission in two earlier proceedings.
• Cal-Am’s shareholders should not earn an equity return on the Project.
• Cal-Am does not meet the Commission criteria established for the extraordinary circumstances that would warrant a utility’s ratepayers sharing in the costs of abandoned projects as set forth in (4 prior) decisions.
• (quotes from ALJ Walwyn Proposed Decision re A.10-09-018 on November 10, 2011)

Which Brings Us to the Ugly

What would Cal Am do now? Well, it shopped for a complicit Commissioner. Catherine Sandoval was appointed in January 2011. She was new. She had telecommunications background, and was new to water issues. Cal Am had 15 ex parte (private but reportable) meetings with four individual Commissioners from mid-2011 through December. Six were with Commissioner Sandoval. Five were with the Chairman Peavey, the longest serving Commissioner. Sandoval issued her Alternative Proposed Decision (APD) in April 2012 that reversed every issue mentioned above. YES, THAT REVERSED EVERY ISSUE INTO CAL AM’S FAVOR!

Not only that, Sandoval issued her APD on April 24, 2011, and recommended CPUC approval 30 days later, the fastest authorized time frame. The less time for reaction, the better. Quick action by only two ratepayer groups (Citizens for Public Water and Division of Ratepayer Advocates) objected. The CPUC hearing of the APD was delayed for one month. On June 21, 2011, the CPUC approved the APD, a 4-1 vote, giving Cal Am everything it asked for. Results: The process showed that Cal Am was judged to be a poor steward of San Clemente Dam, ran up costs that were unreasonable, got caught, and was reprimanded in the Proposed Decision.

Follow Up

Cal Am lobbied CPUC, CPUC agreed, Cal Am got everything it wanted. Costs on ratepayers went from $75 million to $152 million! Cal Am investors gained full profit for a demolition and escaped any stranded cost expenses. CPUC proved it was fully industry-biased., and had little regard for ratepayers.