Human Right to Water
Since 2012, California law has declared that every person in the state has a right to clean, safe, and affordable drinking water. However, hundreds of water systems serving millions of Californians lack the technical, managerial, or financial resources necessary to provide safe and reliable water service at affordable rates. Although a portfolio of solutions will be needed to address this situation, the Public Advocates Office recognizes that acquisition of inadequately operated and maintained water systems by California’s largest investor-owned water utilities (IOUs) can help achieve the State’s Human Right to Water.
In April 2022, the Commission began a rulemaking proceeding to establish a framework for acquisition of water systems by IOUs. As a party in the proceeding, the Public Advocates Office supports prioritizing the acquisition of small failing systems near existing IOU service territories. We also understand that IOU ratepayers have limited capacity to fund the acquisition and improvement of failing systems. Therefore, we have recommended a four-pillar framework to prevent over-priced and unnecessary monopolistic acquisitions to help ensure adequate resources are available and focused on where the public interest is best served.
In 2006, the Commission established rules to share between ratepayers and shareholders the gain (i.e. profit) that may result when a utility asset is sold. Although the Commission has not applied these rules to the sale of an entire water system, conceptually there is little difference between the sale of all an IOUs assets (as in an acquisition proceeding) and the sale of any other number of assets. In both cases, an IOU can receive unreasonable profits on assets funded by ratepayers unless the rules are applied.
Typically, an IOU presents “illustrative” rates when it seeks approval of an acquisition. Rather than seeking approval of an actual budget up front, IOUs request surcharge accounts to record all costs associated with the acquisition and necessary system improvements, and then surcharge customers at a later date for these costs. This process lacks transparency, reduces the IOUs incentive to control costs, and shifts the risk of operations to ratepayers. If an IOU has performed its due diligence evaluating the system to be acquired, it should have a reasonable basis to develop a budget and forecast the necessary rates to meet that budget. This is the traditional ratemaking process and should be the same process for acquisitions.
Bill Number: AB 685 (2012)
Bill Description: Established the policy of California that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption.