Cal Water Alerts

Rates FAQs

Rates

How are water rates set?

Cal Water’s rates are set by an independent third party, the California Public Utilities Commission (CPUC). The CPUC’s job is to protect customers and make sure that rates are fair and reasonable. Oversight by the CPUC helps determine necessary improvements that are made to the water system, that the system is operated efficiently, and that the company only earns a modest return on the funds it invests in water system infrastructure. Rates are based upon “cost of service,” which means that the majority of every dollar a customer pays to Cal Water is dollar-for-dollar what we pay to operate the system.

Infrastructure Improvement Plan/General Rate Cases

All large water companies regulated by the CPUC are required to file an Infrastructure Improvement Plan, formally known as a General Rate Case, every three years so rates reflect the current cost of service. In the General Rate Case process, the CPUC sets rates to cover the costs of providing water and allow the utility to earn a reasonable return on its investment in the water system. Major costs to operate a water system include purchased electric power, purchased water, treatment costs, groundwater pumping fees, labor, and chemicals.

The six steps in the rate-case process are as follows:

  • Cal Water reviews its historical costs, projected costs, and planned water system improvements and prepares a General Rate Case application for the consideration of the CPUC staff.
  • The CPUC Division of Ratepayer Advocates (DRA) analyzes Cal Water’s application and makes a recommendation. DRA usually recommends a smaller increase than that requested by the utility.
  • The CPUC hosts public hearings to receive input from customers on the application. Customers may also write to the CPUC.
  • The CPUC holds a formal hearing, presided over by an Administrative Law Judge (ALJ), which is similar to a court proceeding.
  • The ALJ issues a proposed decision.
  • The CPUC Commissioners vote on the proposed decision. New rates typically become effective five days later. The entire process can take 18 months or more.

Balancing Accounts

The CPUC requires that water utilities track certain expenses in “balancing accounts.” Balancing account expenses include electricity rates, purchased water costs, and pump taxes.

Once per year, the CPUC and the water utility will review the balancing accounts to determine whether these costs were higher or lower than forecasted in the utility’s previous rate case filing. If the costs are higher, the CPUC authorizes a surcharge on customers’ bills; if the costs are lower, the CPUC authorizes a credit to customers’ bills.

The purpose of balancing accounts is to protect both utilities and customers from unforeseeable—and uncontrollable—changes in costs, and to confirm that rates accurately reflect the cost of providing water service.

What is WRAM?

The Water Revenue Adjustment Mechanism (WRAM) is a rate-making mechanism adopted by the California Public Utilities Commission that breaks the link between water sales and revenues to encourage conservation. The WRAM works with the Modified Cost Balancing Account (MCBA) to balance out cost savings and revenue under collection.

Each year, Cal Water is allowed to recover a set amount of revenue to cover its fixed and variable operating expenses. When sales go down, Cal Water collects less in revenue, but it also incurs lower variable expenses. The cost savings from the variable expenses is deducted from the authorized revenue level. The difference between the actual revenue collected and the authorized revenue, after taking out the cost savings, is the shortfall in revenue for fixed costs. Cal Water is allowed to implement a surcharge to recover the annual shortfall in revenue. This is what you see on the bill.

With the WRAM, Cal Water instituted tiered rates for metered customers, which do not increase overall revenues to the company, but instead reallocate those revenues so that high-water-using customers pay a higher rate, and low-water-using customers pay a lower rate. The quantity charge is lowest for the first several units of water a customer uses, and the quantity charge goes up in steps as usage increases. These rates are designed to reward water conservation, so the less water a customer uses, the more money he or she saves.

Why did Cal Water implement increasing block rates?

The CPUC supports increasing block rates, also called tiered or conservation rates, because they provide an incentive for customers to conserve water. They do not change the overall amount collected by Cal Water, but high-water-using customers will pay more, and low-water-using customers will pay less.

What’s happening with flat-rate customers?

Flat-rate customers will be charged conservation rates when their meters are installed as required by section 527 of the water code. All Cal Water customers must be converted to meters by 2025.

How were the tiers established?

The tiers are based upon the average residential customer’s annual water usage in your rate area or city.

Why aren’t non-residential customers getting tiered rates?

Businesses are more likely to be different from one another, and they do not have a clear pattern of use from season to season. The Commission has adopted non-residential rates that push more of the cost of water to the quantity rates, so these businesses may see a bigger incentive to conserve. Non-residential use varies greatly depending on the size and type of business. The rates that have been approved for non-residential users will not unduly penalize large users yet still provide an incentive to conserve.

I have a big family and many pets (or a small family with no pets); why aren’t the rates based upon the number in each household?

If you have have a big family and many pets (or a small family with no pets), you might wonder why rates are not based who is living in your household. This is because Cal Water does not maintain information on individual customer demographics.

I live on a large (or small) lot; why aren’t the rates determined by lot size?

Unfortunately, if you have a larger lot than others in your community, your water demands may be higher than average. Cal Water has industry-leading conservation programs and information available to allow you to use outdoor water more efficiently.

How can I voice concerns about the rate structure?

If you have any questions about Cal Water’s rate structure, as always, you may contact the CPUC.

How are multi-residential (three or more units served by larger than 1″ meter) customers billed?

Multi-residential (three or more units served by larger than 1″ meter) customers are charged non-residential rates unless they are individually metered. If you live in an apartment, condominium, or mobile home with a sub-metering system, you may pay residential rates. Please check with your landlord, homeowners association, or property manager.