WATER SUPPLY PLANNING COMMITTEE
DISCUSSION ITEM
3.	DISCUSSION OF MPWSP COST OF WATER CALCULATION
Meeting Date:		July 6, 2020	Budgeted:	N/A
From:		David J. Stoldt	Program/
		General Manager	Line Item No.:	N/A
Prepared By:		David J. Stoldt	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation:
CEQA Compliance: This action does not constitute a project as defined by the California Environmental Quality Act Guidelines Section 15378.

SUMMARY: On December 31, 2018 California American Water (Cal-Am) filed Advice Letter No. 1220 with the Public Utilities Commission (CPUC) regarding the Monterey Peninsula Water Supply Project (MPWSP). The filing addressed income tax rates and tax provisions needed to be updated in the MPWSP financial model based on rates approved in the last General Rate Case (D.18-12-021) and tax changes associated with the 2017 Tax Cut and Jobs Act. Attachment C of the filing was an updated portion of the MPWSP financial model that was previously provided as part of the testimony in the desalination project proceeding at the CPUC. The financial model provides an approximation of the capital and O&M costs and the revenue requirement for the project, including the various components to the financing plan. Attached as Exhibit 3-A is an excerpt of AL-1220’s Appendix C-3, results of the MPWSP desalination financial model.

In the Exhibit, the reader can see a “Total YR1 Cost to Customer”, as well as “Fixed,” “Variable,” and “Total” cost per acre-foot (AF.) In the course of its review of the model during the proceeding, the District discovered an error in how the cost of water was calculated, yet that error remained unchanged and propagated through AL-1220, which was the last public document from Cal-Am demonstrating the potential cost of water from the MPWSP.

DISCUSSION: The model results show a first-year cost to customers of $38.1 million. Yet, it also shows a first-year cost per AF of $3,573 for water delivered to the system. This can only be possible if the denominator in the calculation is 10,633.3 AF per year. However, the plant is only designed to deliver 6,252 AF per year to the Peninsula.

Unfortunately, the denominator is vastly overstated and includes 3,500 AF per year from Pure Water Monterey, which it should not, and also assumes the desalination facility produces over 7,100 AF per year, which requires the 6.4 million gallons per day (MGD) plant to run at 100% capacity 24 hours a day, every day of the year, and would not be the case in reality.

Recalculated for the 6,252 of potential delivery to the Peninsula the $38.1 million of year-one costs of the project translates to $6,094 per AF. Cal-Am has never publicly corrected this error.

Further, if the desalination plant capacity is not fully utilized, perhaps due to insufficient consumer demand for water, the cost per acre-foot rises due to the fixed costs, as shown below.

Production by Desal Plant – AF	6,252	5,000	4,300
Variable Cost ($ Million)	7.8	6.2	5.4
Fixed Cost ($ Million)	30.3	30.3	30.3
Total Annual Cost to Customer	38.1	36.5	35.7
Cost per Acre-Foot	$6,094	$7,308	$8,294

EXHIBIT
3-A Excerpt from Appendix C-3 to AL-1220

U:\staff\Board_Committees\WSP\2020\20200706\03\Item-3.docx