California Utilities Struggle To Offset Conservation Costs

Water rates are expected to go up in California, according to a survey of water utilities released by the rating agency Fitch.

Utilities are trying to offset the costs associated with water conservation during the drought. “Seventy-eight percent of utilities polled indicated that rate adjustments will be on tap in the next year or have already begun. Fifty-seven percent said a self-correcting rate structure is already in place,” according to Fitch.

Kathryn Masterson, a senior director at Fitch, explained the origin of the trend.

"The persistence of this drought has begun to outstrip the tools utilities typically use to manage the state's hydrological cycles," she said. "Despite constitutional considerations and legal scrutiny of water rates, rate increases remain one of the most viable tools utilities have in the face of greater conservation and lower revenues."

These factors may set up an active political year for these utilities, since raising water rates is not easy in California.

“State law requires utilities to notify all property owners in writing of the proposed change and hold a public hearing to receive protests. It also requires water changes to be limited to the actual cost of service. Many California water utilities are currently engaged in cost-of-service studies, making rate actions likely during mid- to late fiscal 2016,” Reuters reported.

Other survey findings, per Reuters:

In addition to rate increases, 52 percent of water utilities expect to offset lower revenues by cutting operating expenditures, 46 percent said they would dip into financial reserves, and 37 percent said they would divert from their planned capital spending, according to Fitch.

The value of water is a major challenge for the water industry. The American Water Works Association (AWWA) listed “public understanding of the value of water systems and services” and “public understanding of the value of water resources” among the most important issues for 2015.

For more stories related to communicating the “value of water” to rate payers, visit Water Online’s Consumer Outreach Solutions Center.