California Water Penalties May Hurt Utilities
By Sara Jerome,
@sarmje
Huge penalties for water overuse in California could be tough on utilities, potentially leading to rate hikes and regulatory challenges.
"California's strict new regulations for water conservation could have the unintended consequence of hurting the credit quality of water utilities in the drought-stricken state," Reuters reported.
The backdrop is that California water regulators enacted regulations in July that permit officials to levy a $500 fine for water wasting.
"The action by the State Water Resources Control Board came after its own survey showed that conservation measures to date have failed to achieve the 20 percent reduction in water use sought by Gov. Jerry Brown," the Associated Press and FOX 11 reported.
Though ratepayers are the target of the rules, the conservation effort may hit utilities the hardest.
"Moody's Investor Service warned that a significant drop in water sales could weaken the credit quality of some water utilities, many of them public districts," Reuters reported.
The upshot is utilities may need to raise rates.
"A decline in water sales would pressure utilities with weak debt service coverage to increase rates to stabilize revenues," Bloomberg reported, citing Moody's.
Raising rates could present a regulatory headache.
“The prospect of charging customers more to deliver less water could be politically challenging,” Moody’s said, per Bloomberg.
Eric Hoffmann, a Moody's senior vice president, explained the analysis.
"Less sales is going to mean less revenue," Hoffmann said to Reuters. "If they want to preserve their current revenue profile, there really isn't a lot they can do besides raise rates. That's not something that local governments are going to take lightly."
Most of California is affected by extreme drought.
"After three years of record-low rainfall, 80 percent of the most populous U.S. state is now experiencing extreme drought," Bloomberg reported, citing the U.S. Drought Monitor, a government website.
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