Conservation Recommendations
The following Joint Recommendations (Recommendations) were prepared by California American Water Company (Cal Am), California Water Service Company (Cal Water), Golden State Water Company (Golden State) (Water Companies), Natural Resources Defense Council, and Mono Lake Committee. The Recommendations are endorsed by the following additional environmental groups and interested parties: California Urban Water Conservation Council, Environmental Defense, Pacific Institute, Planning and Conservation League, League of Women Voters of California, Friends of the River, Sierra Nevada Alliance, and Southern California Watershed Alliance. These companies and organizations are referred to collectively herein as the "Joint Signatories." The Joint Signatories provide these Recommendations as a demonstration to the California Public Utilities Commission (Commission) of diverse stakeholder support for prompt and timely actions to implement the Commission's Water Action Plan (WAP) objective to strengthen water conservation programs. These recommendations also serve as a response to the July 7, 2006 letter from Kevin Coughlan requesting comments on "methods to implement the Water Action Plan...." Joint Signatories may also provide their own comments on the Rate Case Plan and other aspects of the Water Action Plan.
As discussed below, Water Companies support the water conservation objectives and actions outlined in the Commission's WAP and are pursuing implementation of many of the Plan's water conservation "actions" in various forums before the Commission. In the past, Water Companies have been constrained from expanding water conservation programs by certain Commission rate setting practices, as described more fully in these Recommendations. Water Companies have sought collaboration with the environmental community to assure their support.
Environmental organizations are seeking expanded water conservation programs and accomplishments by regulated water companies, including more effective and equitable price signals for water consumers and additional cost-effective investments in water efficiency measures by the companies and their customers. Such improvements in water efficiency will serve generally to reduce diversions from California's rivers, protect and restore the state's aquatic ecosystems, and reduce energy consumption. Cost-effective efficiency measures will also help mitigate the rising costs of water, wastewater, and energy utility service for consumers and communities.
While Joint Signatories strongly support the water conservation objectives established in these Recommendations, they are equally aware that the Water Action Plan sets forth a number of other objectives that are also critical to meet the long term water supply reliability needs and concerns of their ratepayers. Thus, the Commission's implementation measures must both balance and reflect the total package of needs while maintaining affordability.
Recommendations of Joint Signatories
Phase One. At the earliest opportunity Joint Signatories recommend that the following water conservation implementation measures be ordered by the Commission:
1. Decoupling revenues from sales. One key action necessary to substantially increase the water conservation actions of regulated utilities is for the Commission to remove the current financial disincentive to conserve water. Several water companies, including CAW and Cal Water, have proposed a water revenue adjustment mechanism (WRAM). As clearly stated in the WAP, a WRAM provides water companies and customers revenue neutrality with respect to the effects of water conservation programs and is consistent with the Commission's successful revenue decoupling mechanisms for gas and electric utilities.
2. Increasing block rates. Conditioned on implementation of a WRAM, Joint Signatories recommend the use of increasing block and volumetric rates. Increasing block rates are supported by the WAP and also are used in the gas and electric industries. Increasing block rates will be designed to be revenue neutral compared to the current rate structure, yet provide price signals for higher use customers to reduce consumption. Implementation should be phased in, starting with modest differentiation between blocks to gain customer understanding and acceptance.1 Joint Signatories recommend that education programs and conservation options be made available to Water Company customers concurrent with implementation of the Phase One recommendations. Joint Signatories recognize that Water Companies have a duty to their ratepayers and the cities they serve to develop and implement equitable and efficient rate structures, which meet the reasonable needs of their residential and business customers. Joint Signatories agree that implementation of block rates should take into account effects on low income customers.
3. Increased conservation program activity and accountability. Joint Signatories support increased water conservation budgets and recommend that the Commission adopt policies and allow utility recovery in rates for any additional implementation cost to ensure each of the following:
a. Cost-effective water conservation program investment will be maintained at a level equivalent to 1.5 % of revenues or more.2
b. Water conservation programs should be subject to a two-way balancing account to provide year to year implementation flexibility as well as accountability for unspent funds.
c. Each Water Company is and will remain a signatory to the MOU Regarding Urban Water Conservation in California.3
d. Each Water Company will comply with the requirements of the Best Management Practices contained within the MOU.
e. The Water Companies are committed to streamline and enhance the reporting for conservation programs, thus providing accountability and transparency for their conservation expenditures. The Water Companies will report annually on water conservation program budgets, expenditures, and accomplishments. Joint Signatories recommend that the Public Utilities Commission and the Division of Ratepayer Advocates first consider two standard report formats developed by the California Urban Water Conservation Council as the means to comply with these agreed upon conservation reporting objectives. These reports are: 1) the Council's BMP Report Forms4; and 2) the Council's BMP Water Savings Calculation Model.5 This will provide the Commission and the public with consistent data on the conservation programs of each Water Company and should also minimize duplicative and potentially burdensome reporting requirements.
f. Since water consumption is typically reduced by 20% or more when service connections are metered and billed volumetrically, the Commission should have a policy to ensure that all Water Company customers with metered service connections are being billed at volumetric rates.
g. Beginning in 2007, water companies will gather data on water losses in a format consistent with the most current version of the M-36 Manual regarding water audits and leak detection published by the American Water Works Association. This information will be submitted to the Commission each year by district.6
Phase Two. Joint Signatories agree that, following Commission approval and implementation of the above three recommendations, a second phase of water conservation development will be promptly considered for implementation. Key components of Phase Two will include consideration of the following actions:
1. Foundational analyses for additional water use efficiency.
a. The Water Companies agree to prepare a quantitative determination of their avoided cost of water, using the method developed by the CUWCC, for each ratemaking district or region in the company.7 Due to the importance of this analysis to any assessment of the value of saved water and the cost effectiveness of the Water Companies' investments in water conservation, this determination and its supporting documentation will be developed and provided to the Commission 60 days before the filing of a general rate case application.
b. Subject to state law and Commission policy regarding the confidentiality of customer data, the signatories will work together to develop approaches to allow wastewater service providers to employ volumetric billing of wastewater service in the Water Companies' service areas. The Joint Signatories will report its findings and recommendations to the Commission within 18 months after implementation of Phase One.
c. For each district where the Commission has not already approved an installation plan, Water Companies will file a meter installation plan for all unmetered service connections, consistent with state law and BMP 4, as part of the general rate case application or a separate application to be filed before the next rate case.
d. The Water Companies will include a component analysis of water system losses, which will identify sources of losses and describe various cost-effective mitigation measures recommended to be implemented as a result of analysis of the water loss data noted in Phase 1 item 3.g. in each of their rate case applications.
e. In furtherance of the WAP's objective to reduce the energy consumption of water utilities, Joint Signatories will work together to develop approaches for improving energy efficiency and quantifying energy savings attributable to the Companies' water conservation programs.
2. Proposals for financial incentives for enhanced water conservation investments. Joint Signatories will propose measures that provide financial rewards for successful conservation programs, as was recommended in the WAP. Financial incentives will encourage Water Companies to pursue a portfolio of measures that reduce water consumption. This portfolio may include innovative rate designs, customer directed water conservation measures, and or internal measures to reduce consumption, e.g. reduction of losses. These financial incentives are intended to place demand-side management programs on a financial par with supply-side investments.
a. Rate base treatment of certain investments in water efficiency. Joint Signatories will develop and propose to the Commission recommendations for criteria to allow future investment in water conservation programs to be eligible for addition to the rate base upon which the Water Companies' authorized rate of return may be earned. Such recommendations will address:
i. The location of the investment, i.e., company or customer premises;
ii. The types of programs, equipment, components, or software that may be eligible or ineligible;
iii. The permanence or durability of water savings;
iv. Cost-effectiveness; and
v. The appropriate sequencing and loading order for both rate-based and non-rate based investments.
b. Other financial incentives. Joint Signatories will propose to the Commission other financial incentives to recognize Water Companies' performance in developing programs to increase water conservation. Proposals may include financial incentives for education and other programs which would not be suitable for rate base treatment. Proposals may be modeled after stockholder incentives established by the Commission for energy utilities.
3. Financial assistance for demand reduction measures. Joint Signatories recommend measures for securing water efficiency investments that are economically feasible but may lack financial feasibility at the Companies' approved rate of return. Such measures will enable Water Companies to pursue a more complete portfolio of economically feasible programs that reduce water consumption. Subject to the Commission's duty and existing rules to ensure that 100% of public funds are invested for public benefit and not placed in the rate base to increase water company earnings, the Joint Signatories recommend Water Companies be eligible for state bond funding to pay for economically feasible water conservation programs that have been authorized by the Commission.
4. Further refinement of increasing block rate design. Joint Signatories will work together in Phase Two and otherwise to recommend additional refinements to the implementation of block rate structures. Refinements will build on lessons learned from Phase One as to customer response, including water consumption patterns. Refinements may include, for example, the development of seasonal rates, additional rate classes, additional rate blocks, rate block size and scope refinements, and adjustments to the service charge. The objective is to provide customers with equitable and economically rational price signals that are based on the Water Companies' costs (historic and avoided), including financial incentives to reduce consumption at peak periods, consistent with equity and efficiency considerations.
Implementation Process
Joint Signatories are proposing implementation of the Phase One actions noted above in various proceedings before the Commission as stated below. While these Recommendations represent and reflect general policy agreement among the Joint Signatories, specific implementation details must and will be addressed in the individual Water Company filings, with the understanding that the details may vary among Water Companies as applied.
Listed below is a status report indicating the forum for each of the Phase One actions:
General Rate Cases: Cal Water and the Division of Ratepayer Advocates have jointly recommended a WRAM and increasing block rates for the eight districts in Cal Water's 2005 general rate case. In addition, Cal Water in its 2006 general rate case intends to request a WRAM, increasing block rates, and an increase in its water conservation budget for eight additional districts. Cal-Am has a request for WRAM, increasing block rates, and increased conservation funding for its Los Angeles District in its pending general rate case.
Policy Application: GSWC intends to file a general policy application with the Commission in the very near future. The application will include a request for WRAM and increasing block rates.
Advice Letters: Commission Resolution W-4594 authorized Great Oaks Water Company to file an advice letter to establish a revenue/sales adjustment account should the Commission grant to any other water utility a revenue/sales adjustment account in a specific or a generic formal proceeding. Accordingly, Joint Signatories recommend using the advice letter procedure to more quickly implement the actions noted in Phase One.
The three tables below provide a summary of Phase One actions and a corresponding Commission forum for adoption.
Cal Water Conservation Action Implementation |
||
| Water Conservation Action | General Rate Case | Advice Letters |
| 1. WRAM | Pending — 2005 GRC Districts Forthcoming — 2006 GRC districts and 2007 GRC districts |
Possible AL for 2006 and 2007 GRC districts |
| 2. Increasing block rates | Pending — 2005 GRC Districts Forthcoming — 2006 GRC districts and 2007 GRC districts |
Possible AL for 2006 and 2007 GRC districts |
| 3. Increased conservation budget and accountability | Pending — 2005 GRC Districts Forthcoming — 2006 GRC districts and 2007 GRC districts |
Possible AL for 2006 and 2007 GRC districts |
|
||
| Water Conservation Action | Policy Application | Advice Letters |
| 1. WRAM | Forthcoming policy application | |
| 2. Increasing block rates | Forthcoming policy application | Possible AL for 2006 GRC districts |
| 3. Increased conservation budget and accountability | Possible AL for all districts | |
|
||
| Water Conservation Action | General Rate Case | Advice Letters |
| 1. WRAM | Partially implemented in Monterey District Requested in pending LA district GRC | Possible AL for other districts |
| 2. Increasing block rates | Already implemented in Monterey District Requested in pending LA district GRC | Possible AL for other districts |
| 3. Increased conservation budget and accountability | Requested in pending LA district GRC In some districts, CAW has increased conservation budgets without guarantees of Commission funding. Cal Am may increase funding in other districts prior to Commission rate cases. |
Possible AL for all districts |
Signatories:
Paul Townsley, President
California American Water Company
Peter Nelson, President
California Water Company
Floyd E. Wicks, President
Golden State Water Company
Frances Spivy-Weber, Executive Director
Mono Lake Committee
Ronnie Cohen, Senior Policy Analyst
Natural Resources Defense Council
These Conservation Recommendations have been endorsed by:
California Urban Water Conservation Council
Environmental Defense
Pacific Institute
Planning and Conservation League
League of Women Voters of California
Friends of the River
Sierra Nevada Alliance
Southern California Watershed Alliance
1 The Water Companies agree that the initial implementation, though modest, should provide a meaningful change from current single block rates.
2 The 1.5 percentage represents a system-wide objective, i.e., for all districts within a particular GRC proceeding; individual districts may be higher or lower than the system-wide level. Conservation budgets include direct Water Company programs and documented Water Company contributions to programs undertaken by the Water Company's wholesale supplier or in partnership with other wholesale suppliers, energy utilities, and other agencies.
3 Water Companies are and have been in compliance the Water Action Plan's recommendations that water utilities sign the MOU with the California Urban Water Conservation Council.
4 Use of this web-based reporting system is already required of all signatories to the Urban MOU.
5 In November 2004, the Council approved the use of the BMP Water Savings Calculation Model developed under a cooperative agreement with CALFED. The model is intended for use by the Council to provide internally consistent estimates of water savings that result from the implementation of quantifiable BMPs, and is available for use by individual water suppliers to calculate their own water savings.
6 AWWA is in the process of revising the M-36 manual. Free software for reporting data in the newly proposed format is available for download at www.awwa.org/WaterWiser/waterloss/Docs/WaterAuditSoftware.cfm.
7 See Final Draft, Water Utility Direct Avoided Costs from Water Use Efficiency, January 2006 available for download (including the final model and installation instructions) from the Council's website at www.cuwcc.org/committee_sub_avoided_cost_enviro_benefits.lasso.