Big Oil and Water

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The following Op-Ed Commentary by Consumer Watchdog’s John M. Simpson, was published in the San Francisco Chronicle on Thursday, May 15, 2008:

They say oil and water don’t mix. Maybe that’s why Chevron
is so tone-deaf in its dealings with a small California town that
depends on the oil company for its water. Chevron, which inherited a
tiny water agency serving the Central Coast hamlet of Casmalia in a
merger, has asked to raise rates to a level that residents say
threatens the very existence of their community.

Chevron just posted record first-quarter profits of $5.17 billion on
top of a record profit of $18.7 billion in 2007. Now the Chevron-owned
local water company wants to raise water rates by 138 percent for its
52 residential customers in Casmalia.

The oil giant has told the Calilfornia Public Utilities Commission
that it deserves a "reasonable rate of return" on its midget water
company. Mainly, most residents suspect, Chevron wants out of the water

The Public Utilities Commission staff proposes a rate increase of
89.7 percent and a "9.01 percent rate of return" for the water company.
A resolution to enact that increase is on the PUC’s agenda for today’s

Even at the lower PUC rate proposal, town officials say the increase
will kill their community. "If this increase is granted," wrote Bill
Ostini, president of the Casmalia Community Services District, "it will
signal the beginning of the end for us."

Casmalia is 1.5 miles north of Vandenberg Air Force base. In the
early 1900s, the population was 1,500. It’s since dwindled to around
200, and the town is perhaps best known for the Hitching Post
Restaurant. From 1973 to 1989 the notorious Casmalia Resources
Hazardous Waste Facility operated a mile north of town. During the time
it was in business, the toxic dump received more than 4 billion pounds
of waste from around the Golden State. Fumes regularly blew into town
and sickened residents.

Those days are over. Now the site is the target of an EPA Superfund
cleanup, and Chevron is involved as a member of the Casmalia Steering

Casmalia gets its water from the Casmite Water Corp., owned by
Chevron. Casmite has provided Casmalia’s water since the 1940s, when it
had oil operations in the area. Unocal acquired Casmite in 1953, and
then Chevron swallowed up Unocal in 2005.

At a PUC hearing, company officials said that before 2005 the
company was not collecting enough fees to cover its costs. The execs
maintain that because the water company is under PUC jurisdiction, they
are required to recover costs through the rate structure.

They say annual revenue received from 52 residential customers must
rise from the current $72,700 to $173,000. That $100,000 increase is
huge to residents with a median household income that town officials
peg at around $30,000.

The current average household monthly water bill is $115. Under the
Chevron increase it would be $272. The 89.7 percent increase before the
PUC would bring the average to $217. Customers of other water systems
in Santa Barbara County pay $40 to $60 a month for similar amounts of

Certainly there has to be a sensible way Chevron can leave without
killing the community. Chevron needs to harness some of the vaunted
"human energy" touted in its multimillion dollar ad campaigns and solve

Here’s one possible way: Before leaving, Chevron should pay whatever
is necessary to get the water system in shape and do whatever else is
needed so it can be merged with a viable utility, one that’s actually
in the water business. Chevron should also set up a trust fund to help
subsidize the system for several years.

There is precedent for this. When Atlantic Richfield faced a similar
situation in New Cuyama back in 1977, it turned over the water system
and $1 million to the Cuyama Community Services District.

Merged into a larger water company, Casmalia’s rates could be spread over a reasonable customer base.

Ruining a little town to get out of a business that it wants to shed
seems beneath a company that has profited so handsomely from California
motorists, including those who live in Casmalia.


John M. Simpson is a consumer advocate with the nonprofit, nonpartisan Consumer Watchdog. E-mail [email protected].

Consumer Watchdog
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