CPUC Floats $3.4 Billion Green Water Tax

MARCH 4, 2011

BY WAYNE LUSVARDI

Call it the Green Water Tax. It’s a proposal advanced in a White Paper on the Web site of the California Public Utilities Commission (CPUC) to impose a $3.4 billion surcharge on the energy-related costs to pump and treat water. The new surcharge — effectively a tax — is “pernicious,” charged David Powell, an expert on California water policy.

The surcharge would be enacted in 2012 to meet the administrative costs of implementing AB 32,  the Global Warming Solutions Act of 2006. Last November, voters had a chance to suspend AB 32’s implementation by passing Proposition 23. The measure lost heavily, keeping AB 32 in place.

But did voters know that they might have been voting for a $3.4 billion tax? And on what would this $3.4 billion be spent?

CPUC White Paper

The Green Water Tax proposal was put forth in a “White Paper” released in September 2010, by the University of California, Berkeley Public Policy Division. Its name: “Implementing a Public Goods Charge for Water.” Due to the approaching November election, little notice was made of this proposal. The charge would be implemented starting in 2012 to meet the administrative costs of AB 32.

To give you an idea of the magnitude of the proposed water surcharge, it takes $1.1 billion to operate the entire State Water Project each year, the largest state-built water and power development and conveyance system in the United States. And the entire annual budget for the California Department of Water Resources is $3.6 billion.

If enacted in 2012, the Public Goods Water Surcharge would be in addition to the 19.7 percent water rate increase enacted by the Metropolitan Water District of Southern California in 2009, and another 20 percent rate hike expected in 2011, as a result of drought and environmental lawsuits restricting water deliveries.

According to the White Paper, the water surcharge is slated to go toward defraying the administrative cost of AB 32. For clarification, I contacted David O. Powell, P.E. (Caltech) in Pasadena. Powell is a retired water resources engineer formerly with the U.S. Army Corps of Engineers, the California Department of Water Resources, Bechtel Corporation, Alameda County Water District, and Bookman-Edmonston Engineering. He also was a court-appointed Special Master in the historic Colorado River vs. Arizona case.

Powell clarified the difference between two things: 1) a water replenishment assessment, which is levied to recover the costs of groundwater recharge programs; Powell favors such assessments, which can only be assessed by water agencies. And 2) a Water Public Goods Charge. Powell said he “read the PUC document and realized it was a far more pernicious proposal.”

Powell said that while he is “pretty much convinced that global warming is probably taking place and that it is in part the result of fossil fuel use,” he does not believe “the nature and magnitude of the effects are that well defined, nor is he convinced that the proposed cure isn’t worse than the malady.”

On the U.S. White Paper, he said:

The report seems to suggest funding a substantial portion of AB 32’s administrative cost from a volume-based monetary surcharge on the use of water.  The aggregate amount of this surcharge initially would be $680 million per year, with provision for future increases.

The reasoning behind making the water user a major funder of AB 32’s administration appears to be that energy use associated with water use makes up some 20 percent of the energy use in California.  It is not clear to me whether this 20 percent figure is after deduction of the energy recapture, which occurs from hydroelectric generation accompanying water supply development.

If the amount of $680 million represents 20 percent of the total cost of AB 32 administration, this would imply that the initial total cost for AB 32 is some $3.4 billion per year. [$680 is 20 percent of $3.4 billion.]

It is clear to me that either the total costs of administering AB 32 are unconscionable or the proportion assigned to water users is excessive.  Either of those possibilities is unacceptable.

The U.C. White Paper’s front page notes that it was principally prepared by “student authors and consultants” from the Goldman School of Public Policy at U.C. Berkeley and reviewed by CPUC staff.  On that, Powell said:

The PUC document seems to have been written by student academic theoreticians devoid of experience in the real world.  As an example of the nonsense that permeates the PUC document, I cite the following quote from Page 4: “Decisions about groundwater extraction are not coordinated amongst the various communities that share an aquifer….”

Good Lord!  Have these people never heard of adjudicated ground water basins?!?!  Who knows what additional evidence or flawed understandings would be revealed by more detailed review?

Among many other apparent flaws, the White Paper is also confusing in its assertion on pages 11 and 25 that a Public Goods Water Charge would “save” 2.1 to 3.8 million acre feet of water; while on page 27 it asserts that water use would increase by 5.5 million acre feet by 2030.

To give you an idea of how much 5.5 million acre feet of water is, that is enough water for at least 32 million more people or up to 5.5 billion acres of farmland. California currently has a population of about 37 million.

A Water “Civil War”?

Although the White Paper specifies that such a water surcharge would go toward “administrative costs,” Leslie Mink, a Plumas County environmental manager, commented on the CPUC website that such a surcharge would fund ecological restoration:

Just perused the paper. Good job. Looks like it missed one of the things that we have been working on in the Feather River, though. Sierran meadow restoration can kill 3 birds with one stone — improve agricultural use efficiency, restore natural water storage in the Sierra (also a climate change adaptation since snowpack is diminishing), and sequester carbon. We have data and reports on all of these effects of meadow restoration in the Feather River. See our website at feather-river-crm.org.

We have been hoping for a PGC for water for some time since southern California users benefit from the Feather River water supply, but don’t assist with maintaining the watershed’s ability to provide it. We have a lot of degraded meadows, and are constantly seeking funds to restore them.

Mink describes herself online as a “partner” with the Plumas Corporation to restore the flood plain function of the Feather River.  The Plumas Corporation is a nonprofit agency whose goals are to form public-private partnerships for “tourism promotion, economic development and stream restoration.” In other words, Leslie Mink sees the water surcharge going toward what might be called rural “ecological redevelopment.”

To help reduce the state’s $25 billion budget deficiit, Gov. Brown is trying to divert $5.5 billion in urban redevelopment money to the general fund.

But a Public Goods Water Charge would just shift about $3.4 billion from urban water ratepayers to “green redevelopment.” California urban tourism and retail mall development would be phased down or out, but rural tourism and water-related economic development would be phased in.

There is the possibility of this setting off a civil war between urban and rural redevelopment interests. It would be a reverse of the Owens Valley vs. Los Angeles “Little Civil War” of 1927, in which the Los Angeles Department of Water and Power grabbed water from Eastern California

This time, wilderness and riparian areas would be grabbing money and water from big cities and farmers through a Public Goods Water Surcharge for “eco-tourism,” rustic recreation, the development of new water reservoirs and lakes and possibly fishing industry redevelopment.  A Public Goods Water Surcharge is sure to be controversial, as water and money would flow away from farmers and urban water users to rural wilderness and riparian areas where water, not carbon, would be “sequestered.”  California would be going backward to an economy of more than 150 years ago.

Ethically Taxed

The White Paper has a disclaimer that the report does not represent the views of the CPUC, that the CPUC does not approve or disapprove of the report or warrant its accuracy or adequacy, nor assume any legal liability for it.  The document is printed, however, with a glossy artistic cover clearly labeled “California Public Utilities Commission,” not “U.C. Berkeley Goldman School of Public Policy.”  The document has all the appearances of being an official CPUC document and is posted online at the CPUC’s Web site for public comment.

Disturbingly, both the CPUC and U.C. Berkeley apparently provided considerable staff resources for what appears to be a political advocacy document.

The appendix to the White Paper provides political advocacy advice for “possible legislative sponsors” for “taking on” water “Public Goods” legislation. The document recommends a political strategy of approaching State Sen. Fran Pavley (D), original author of AB 32; Sen. David Cogdill (R), who authored SBX7-7 to reduce statewide water consumption by 20 percent by 2020 (i.e., “20x 2020” Bill); and State Sen. Dennis Hollingsworth (R) who also co-sponsored SBX7-7.

Cogdill and Hollingsworth no longer hold their seats.

The White Paper adds: “Sen. Cogdill may have difficulty supporting a bill that increases taxes or assesses a fee.” Clearly, U.C. Berkeley and the CPUC put substantial staff resources into a student “White Paper” that is political advocacy, not an impartial analysis worthy of public comment.

The White Paper clearly identifies the CPUC as a “client” and the students call themselves “consultants.” Even the Association of California Water Agencies felt obligated to respond.

Advocacy and Conflicts of Interest

The CPUC did not respond to questions as to whether its staff provided substantial public resources to the preparation of this document and whether the report was vetted through the CPUC ethics officer. It also didn’t respond whether there were any conflicts of interest involved when one of its staff members, Cynthia Truelove, who reviewed the report. But she also is a member of the California Sustainability Alliance that is associated with Navigant Consulting, a green tech marketing management non-profit.

The California Sustainability Alliance is an organization funded by California’s investor-owned utilities (PG&E, SDG&E and Edison) apparently to facilitate green businesses and entrepreneurs funded by electricity ratepayers’ money.

Can you imagine the outcry if CPUC staff also were allowed to serve as consultants, lobbyists or brokers for Chevron Oil or for the California Independent Petroleum Association to facilitate start-up businesses? The CPUC did not respond to questions about why this apparent, or real, conflict of interest is allowed to exist.

The white paper is political advocacy, has perceived conflicts of interest and is so obviously flawed as to confuse the public. The CPUC “Implementing a Public Goods Charge for Water” white paper should be withdrawn from the CPUC website and instead deposited wherever professors dump flawed term papers.

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  1. Questions
    Questions 4 March, 2011, 09:14

    1. On pages 11 and 25 of the White Paper it indicates a water savings of 3.2 million acre feet due to imposition of a greenhouse gas surcharge on water. Why would California officials be pushing for a new water bond including two new reservoirs if there would be no need for them due to consumer cutbacks in water usage? Is the left hand of regulators talking to the right hand of water purveyors?

    2. As pointed out by David Powell, the White Paper does not seem to factor in that hydropower provides a portion of the pumping cost for the SWP and the Colorado River Aqueduct (Hoover Dam). Even if AB 32 does not consider hydropower a “clean” source of energy, shouldn’t any real world water surcharge have to be offset for clean hydropower? If not, this would seem something that may be won by adjudication?

    3. The White Paper obviously seems a contradiction. If AB 32 is mandating electric providers switch to 20% clean green power by 2012 and ramping up to 33% thereafter, then why isn’t that 20% to 33% factored into the CPUC/DWR surcharge as another offset? (Are we already up to 40% in tax offsets?). Any conservation credits for previous environmental and conservation projects and programs would mean more offsets to the water-energy tax. Again, if DWR wants to impose a surcharge without considering prior conservation credits or offsets I would guess that this could be subject to litigation (are we now up to say 50%+++ in offsets?).

    4. Recently, I noticed some data that shows electric usage (and thus pollution) way down due to the economic recession. I assume a similar pattern with respect to water usage. It would seem the economic effect of cutting back utility expenses might entirely offset any need to conserve as proposed by CPUC Public Goods Charge (what are we up to in tax offsets now? 150%?? Maybe the CPUC now owes us the ratepayers instead of the other way around?).

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  2. John Galt
    John Galt 4 March, 2011, 11:05

    Wayne,

    Thank you for this new information which would add much more state pressure to push electric, and, now water users, to go off-grid.

    Solar activists, SCE, and the CPUC have gang-raped residential electric rate payers for many years, and, just recently rolled-off the victim after finally inseminating and creating a bastard – – fully illegitimate marginal electric costs for residential customers. SCE, with the CPUC’s blessings, has finally replaced highly reliable, hugely available, natural gas fired turbine generation with problematic, unreliable, unproven solar generation projects…don’t they remember the extremely costly failure of their LUZ project of the 1980’s and 1990’s? The new $3 billon Bright Source project is identical to the failed LUZ project….WTF?

    Southern California Edison’s summer, weekday (10 AM-6 PM), Time-of-Use electricity costs homes (Tariff TOU-D-1, eff. 12-23-10) an unreal $0.552 per kWh while summer evening and weekend electricity costs $0.245 per kWh.

    SCE’s delivery costs are $0.0936 per kWh while energy costs add over $0.45 per kWh during week days.

    If the CPUC properly required SCE to use natural gas fired electrical generation as the proxy for marginal generation costs, rather than solar and wind, residential marginal electric rates for air conditioning would necessarily drop from $0.55 per kWh to about $0.19 per kWh.

    Even $0.19 is very expensive when compared to other large utility tariffs across the USA, but it would at least be based on “best professional practices”. CPUC possibly approved these extremely expensive TOU rates to help venture capitalist friends who have spotted an opportunity popular with aging alternative energy political activists still intent on over-throwing “the Man”.

    Let’s hope that natural gas fuel cells become economic and available … SOON!

    Keep on Truckin’

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