If CPUC eliminates ‘decoupling,’ water rates would rise
As early as Aug. 6, the California Public Utilities Commission (CPUC) could vote to adopt a proposal that would eliminate a best-practice regulatory tool – known as decoupling – that currently removes the incentive of water suppliers to sell more water.
This significant change has the potential to hamper water conservation efforts in California and raise rates for millions of customers without providing them any corresponding benefit at a time when water supplies continue to be scarce and many families already struggle to make ends meet.
Customers who conserve always pay less than customers who do not and are served by the same water system.
The timing couldn’t be worse.
Two major pieces of state legislation were enacted in 2018 (SB 606 and AB 1668) that will require all water utilities serving more than 3,000 customers or 3,000 acre-feet of water annually to meet stringent water conservation targets – targets that are still being designed by the State Water Resources Control Board. Although we don’t yet know what each individual utility’s combined water conservation target will be, we already do know that the targets will be tough to meet and will require significant conservation investment on the part of the utility.
So how does decoupling fit into this scenario?
Implemented over a decade ago in California, decoupling is a regulatory mechanism designed to enable and incentivize water utilities to promote water conservation and implement extensive efficiency programs – in other words, help customers use less of their product – while still being able to cover the costs of keeping drinking water safe and reliable.
Decoupling accomplishes this by severing the link between the utility’s revenue and its sales, allowing the differences to be reconciled each year and adjusting the rates to ensure that they only reflect the true cost of service. The pending CPUC proposal would eliminate decoupling and replace it with a mechanism that would incentivize four of the state’s largest water providers to sell more water to generate additional revenue.
Our experience has consistently been that customers who conserve always pay less than customers who do not and are served by the same water system.
For example, the Alliance for Water Efficiency has published reports documenting these results in four separate communities across the country — including the City of Los Angeles — where water bills are 26.7% lower than they would have been without conservation investments that were incentivized by this same type of decoupling mechanism.
We are concerned that the proposal, although well intentioned, will nonetheless have twin unintended consequences: raising rates for low-income customers and disincentivizing water conservation and efficiency. We believe that the implications of this decision should be carefully examined, with a complete analysis of available data and extensive discussions with industry experts.
This is not a decision to be made hastily, particularly since the utility water conservation targets will not be set by the State Board and made public until 2022.
The CPUC’s leadership on conservation and sustainability has always served as a gold standard, not only in California but across the country. But now this decision is on a fast track: it has been only thirty days since the proposal to eliminate decoupling was released to the public, and a vote is already scheduled for Aug. 6. Surely there is more benefit than harm to taking the time to fully evaluate whether this change will help or hinder California’s affordability and water supply challenges.
We urge the CPUC to weigh the issues carefully and give the analysis the time it deserves.
Editor’s Note: Mary Ann Dickinson is president and CEO of the Alliance for Water Efficiency (AWE). Robert F. Powelson is the president and CEO of the National Association of Water Companies (NAWC).
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