WATER SUPPLY PLANNING COMMITTEE |
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DISCUSSION ITEM |
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3. |
DISCUSSION OF MPWSP COST OF WATER CALCULATION |
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Meeting Date: |
July 6, 2020 |
Budgeted: |
N/A |
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From: |
David J. Stoldt |
Program/ |
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General Manager |
Line Item No.: |
N/A |
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Prepared By: |
David J. Stoldt |
Cost Estimate: |
N/A |
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General Counsel Approval: N/A |
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Committee Recommendation: |
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CEQA Compliance: This
action does not constitute a project as defined by the California
Environmental Quality Act Guidelines Section 15378. |
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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-1220s
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
$6,094 per AF. Cal-Am has never publicly
corrected this error.
Further, if the desalination plant capacity is not
fully utilized, perhaps due to insufficient consumer demand for water, the cost
per acre-foot rises due to the fixed costs, as shown below.
Production by Desal Plant AF |
6,252 |
5,000 |
4,300 |
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Variable Cost ($ Million) |
7.8 |
6.2 |
5.4 |
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Fixed Cost ($ Million) |
30.3 |
30.3 |
30.3 |
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Total Annual Cost to Customer |
38.1 |
36.5 |
35.7 |
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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