Why Piecemeal Ratemaking Can Lead to Higher Water Bills

To set reasonable utility rates, the California Public Utilities Commission (CPUC) needs to understand the full picture of what a utility plans to spend and what customers will be asked to pay.

That review generally happens through a General Rate Case (GRC) process – essentially the CPUC’s review of a utility’s basic budget for a 3- or 4-year period. As we’ve discussed in previous blogs, some utility costs can be tracked or approved for inclusion in customers’ bills outside of the general rate case process.

These non-general rate case mechanisms can serve a specific purpose. But when the CPUC approves significant capital projects outside the general rate case process, it cannot balance competing infrastructure priorities, assess cumulative customer bill impacts, or determine whether the utility’s overall spending request is reasonable. For customers, the result can be a series of bill increases without a clear picture of how much their bills are changing overall. This makes it difficult for households and businesses to budget for essential utility services, such as electricity, natural gas, telecommunications, and water.

An Example: When Water Utility Costs Are Reviewed Separately

Water utilities are required to install new water treatment facilities to comply with new federal standards for per- and polyfluoroalkyl substances (PFAS). While these investments are necessary, California Water Service Company and San Jose Water Company each recently claimed that the urgent need for PFAS facilities justified seeking cost recovery outside the scheduled general rate case process. But neither company demonstrated why a separate request was necessary.

In urgent circumstances, a utility does not need prior CPUC authorization to initiate work. That’s because regulated utilities’ highest priority is to provide safe and reliable service. Any regulated water company can and should proceed with necessary projects, then seek recovery of all reasonable costs through the traditional general rate case process. This process encourages good forecasting of costs and necessary capital investments as well as fiscal discipline – things that all businesses and households must do.

What Customers Actually See on Their Bills

Numerous and overlapping utility requests to recover costs outside of the general rate case process compound the impacts on customer bills, and those impacts can be significant.

• California Water’s 2025 PFAS request would result in some customer bills going up by an additional 10% above the 10.5% increase approved in the 2025 general rate case – in six of the company’s 22 districts, customers would see a combined 20.5% bill increase in one year.
• If approved, San Jose Water’s 2026 PFAS request would result in customer bills going up by an additional 4% above the 9% increase approved in the 2024 GRC – a 13% total bill increase. That does not include any increase that may result from the 2026 San Jose Water general rate case request.

Viewed individually, each request addresses a particular set of costs. But customers experience the combined result. A customer does not receive one bill for the general rate case and another for a PFAS request – the resulting rate increases ultimately show up on the same utility bill.

This makes it harder for customers to anticipate and budget for their water service and harder for the CPUC to assess affordability based on the full set of increases a customer may be facing.

A More Transparent and Steady Way to Set Rates

Piecemeal ratemaking results in siloed financial reviews and multiple unanticipated bill increases that obscure the total cost to customers, undermine affordability, and erode ratepayer confidence in CPUC oversight.

Comprehensive review does not require that necessary investments be delayed. It means the costs of those investments should be considered in context, alongside the utility’s other spending and the cumulative impacts on customers.

The utilities should include these investments in the general rate case process, and the CPUC should consolidate related requests to evaluate costs comprehensively rather than separately. Doing so would provide greater transparency, support better prioritization of utility spending, and help ensure that the CPUC evaluates rate increases based on what customers are actually being asked to pay overall.