• CalAm’s growth strategy revealed– it’s called “tuck-ins”

    By George Riley, Managing Director
    Public Water Now

    As many agencies and interests hammer way at agreements for a new water supply, Cal Am is hammering away at sealing its plan for its desal location. Cal Am is heavily committed to slant wells at the CEMEX site, the sand mining operation on Highway 1 north of Marina.

    This is the heart of Cal Am’s supply project – slant wells to draw ocean water from beneath the sandy bottom. A subsurface intake will cause minimum interference or damage to marine organisms. This is a good argument, and is encouraged by several state agencies as well.

    But for Cal Am to ride the environmental argument is disingenuous at best, after the damage it caused on the Carmel River. Beyond this one good argument, there are serious and deeply troubling unresolved risks and costs.

    • Cal Am has no water rights for desal. There are legal commitments to extensive data collection and analysis that can take 2-3 years. It appears that Cal Am will use the data and the local crisis situation to justify an argument for a “physical solution” (the idea that practical considerations might bypass existing law). However the State Supreme Court disavowed the physical solution argument in a 2000 decision. Will Cal Am challenge that decision and add litigation costs and delay?
    • Slant wells for potable desal are not operational anywhere in the United States. Cal Am has claimed in a recent report that they are in use in Europe, but it has failed to identify them. There is one extensive test site in Orange County with 14 years of effort and test data, but it is not operational.
    • Agricultural interests have threatened to sue over any pumping from the Salinas River Basin. To ward off litigation, many parties agreed to extensive 2 to 3 years of data collection and analysis. Early data suggests that the concerns by Salinas Valley interests are valid, and its desire to protect its main aquifer are compromised by slant well plans. But the current schedule for CPUC action is to approve the project before full data analysis is complete. This is illogical, but is consistent with Cal Am pressure to proceed.
    • Slant well maintenance and replacement frequency, and their costs, are largely unknown. There is no operational experience for slant wells. They are still experimental. Yet Cal Am expects, and is planning on, our ratepayers to go the distance. Cal Am is using the current crisis to beat the drums for this experiment.

    I believe Cal Am did not intend to fail in its prior proposals for a new water supply. But it did fail – 3 times – and sent the bill to ratepayers. Corporate investors paid none of these stranded costs. Ratepayers covered about $32 million so far, and with another $20 million disputed in legal proceedings ($15-18 million with Marina Coast Water District and $3.4 million with the County).

    Nor do I think Cal Am intends to fail this time. But the type and severity of current risks to slant wells make it a distinct possibility. But Cal Am’s commitment to succeed this time is higher than ever.

    Obviously there is an urgent need. But why this slant well solution over any and all other options? Cal Am has been in the driver’s seat from the beginning, and is pushing ahead despite the inability to adequately answer the troubling risks. I think I now know why. Tuck ins.

    I have been baffled for some time over Cal Am’s commitment to slant wells when there is no acceptable history of its use, when the risks and costs are high. Why? What strengthens Cal Am’s resolve? It is theoretically a good idea, but the practical and cost aspects have not been confirmed. Even the state agencies that favor slant wells say “if feasible.”

    I recently researched the corporate growth policy of Cal Am’s parent company American Water Works. Now I see a direct connection between the slant well CEMEX site near Marina and the defeat of Measure O. Cal Am spent an enormous amount of money — about $2.3 million — to protect its local interest. It proved the point PWN made — that the Monterey Peninsula is a cash cow for Cal Am and American Water Works. This cash cow perspective was originally limited to current and future revenue. By connecting the dots, I see a more insidious picture. Tuck ins.

    PWN researched American Water Works 10-K filings with the Securities and Exchange Commission. The 2013 filing describes corporate growth strategy to be “tuck ins”.

    Growth of service providers in the investor-owned regulated utility sector is achieved through organic growth within a franchise area, the provision of bulk water services to other community water systems and/or acquisitions, including small water and wastewater systems, typically serving fewer than 10,000 customers that are in close geographic proximity to already established regulated operations, which we herein refer to as “tuck ins.”
    American Water Works 10-K filing with SEC for 2013, page 4:


    This national corporate growth policy called “tuck ins” is further documented in other SEC filings. The strategy is intended to establish water supply ownership, or control, or dominance, in smaller communities as a prelude to serving the growth potential of that community. Of course every corporation expects to and works to make money. But this is more than that. It can be a muscle play for dominance

    This ‘tuck in” national strategy gives Cal Am extraordinary resolve to insist on slant wells near Marina for one dominant reason: a permanent foothold next door to Fort Ord, the site of predictable growth in the future. It is using the weak justification for slant wells to establish itself in the Fort Ord service area. And do not think its legal battle over the $15 to $18 million debt of Marina Coast Water District is not playing into this calculus.

    Those who only look to avoid water use restrictions, or look for any water supply solution, may miss the big picture. That would suit Cal Am just fine. The gold ring is 15-20 years from now, not 5 years from now. The current crisis plays beautifully into this strategy. In Cal Am’s view – Let’s get slant wells in Marina and let’s get a supply. The future is later.

    This national corporate policy to use “tuck ins” for growth should be of interest to Marina, other Fort Ord interests, and the wider community. It will be to ratepayers who face ever more corporate profit in their water bills.

    George T. Riley, Managing Director

    Public Water Now


    Info: georgetriley@gmail.com

    Long time advocate for public ownership

    Founder, Citizens for Public Water

    Co-founder, Public Water Now

    Intervener with CA Public Utilities Commission

    Formerly Director of Housing, San Mateo County


    posted to Cedar Street Times on August 31, 2014

    Topics: Front PG News, Water


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