CPUC Set to Take a Step Backwards on Water Conservation Policy

David Morse
David Morse was a manager in the CPUC’s consumer advocate division for 20 years. After leaving the CPUC, he collaborated on behalf of water providers with the consumer advocate division to implement conservation rates and decoupling. He is retired.

The fact that the California Public Utilities Commission (CPUC) launched a proceeding to explore ways to improve assistance programs for low-income water customers and instead ended up with a proposal that would eliminate decoupling, a best-practice water conservation tool, is dumbfounding to me. 

It should also be of significant concern to the millions of water customers – many of whom are low-income and who will likely pay higher bills as a result of this proposal, and to members of the CPUC, conservation purists, and all Californians who recognize that water conservation is critical to our water future. 

Decoupling was first adopted in the 1980s by electric and gas utilities to drive down power consumption.  After its success, it was adopted by four of the state’s largest water providers to reduce water consumption.  The concept is to eliminate water providers’ motivation to sell more water by instead incentivizing them to operate efficiently and help customers reduce water usage. 

Thanks to this conservation tool, water providers with decoupling can deliberately collect a more significant portion of their approved costs from high-volume water users. This approach – having customers who use the most water pay a higher proportion of the provider’s fixed costs – also helps discourage excessive water consumption.  

By forcing four of the largest water providers to eliminate decoupling, the CPUC proposal essentially requires them to change how they allocate their approved costs among customers. As a result, low volume users – many of whom are low-income customers – would see significant increases in their monthly fixed fees and in their per-unit cost of water.  In fact, all water customers other than those who use the most amount of water will pay more.

Simply put, eliminating decoupling does not reduce the amount of revenue necessary to provide safe, reliable drinking water, nor does it reduce the amount paid by low-income customers.   It just shifts cost burdens from highest volume customers, to lower-volume customers – many of who are low-income.

This CPUC proposal is apparently motivated out of a desire to protect low-income customers from changes on their bills resulting from flawed water sales forecasting.  But flawed sales forecasting is a problem for water providers that use decoupling and those that don’t.  Before we throw out a proven water conservation mechanism and needlessly increase water bills for millions of customers – more effort should be spent adopting changes to improve water sales forecasts.  During the most recent CPUC meeting where the proposal was discussed, two Commissioners referenced changes to forecasting that have only recently been implemented, and both suggested giving those changes a chance to work. 

Certainly, consideration should be given to requiring annual forecasts. Currently, the CPUC requires the forecasts be completed every three years. Because the planning cycle of three-year rate cases starts two years earlier, water providers in 2020 are expected to determine how much water their customers will use in 2025. We can’t even depend on the accuracy of a weekly weather forecast in California, but we expect water providers to project water use three to five years into the future?

Clearly more work is needed to ensure proposed changes address the root of the identified problem. As currently drafted, the CPUC proposal not only fails to do protect low-income customers, it imposes additional cost burdens on them and millions of other low-volume water users.  The CPUC has no plans for removing decoupling for the energy utilities.  I have no doubt that the CPUC can resolve its concerns with water provider regulation without eliminating decoupling.

(Editor’s note: this article has been updated)

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