The CPUC’s Proposed Decision Protects Water Customers from Unfair Charges
Recently, the California Public Utilities Commission (CPUC) released a proposed decision that affects how water utilities, like California American Water (Cal Am), are allowed to collect revenue from its customers. At the heart of this decision is the Water Revenue Adjustment Mechanism, or WRAM, a system that has been in place for over a decade.
The Public Advocates Office supports the CPUC’s proposed decision which we'll explore in more detail shortly, but first, let's provide some background.
What is WRAM?
Back in 2008, water utilities introduced a pilot program called WRAM as part of efforts to promote water conservation. The idea was that, as people conserved more water, utilities would lose revenue since they charge based on the amount of water used. WRAM was designed to make up for that lost revenue so that they would take actions to encourage customers to conserve water. Essentially, it shifted the risk of revenue loss from the utility companies to customers. Even if a customer used less water, the utility still received the same amount of revenue—this difference was added as a surcharge on a customer’s bill a year or more after the fact.
At the same time, another mechanism called the Conservation Adjustment for Rate Tiers, or CART, was also introduced. CART adjusted revenues based on the effect of conservation pricing, encouraging conservation without placing the same burden on customers. Over a 10-year pilot period, both WRAM and CART were tested.
What Have We Learned from the WRAM and CART Pilot Programs?
Both WRAM and CART aimed to promote water conservation, but after a decade, neither showed a significant advantage in terms of water savings. Even Cal Am’s own consultants acknowledged the inconclusive results.
While WRAM failed to deliver improved conservation, it came at a steep cost to ratepayers—nearly $1 billion more than CART over the past ten years. The WRAM surcharge on customers’ bills became so large that the CPUC had to open multiple proceedings just to find temporary fixes.
Why the Public Advocates Office Supports the CPUC’s Proposed Decision
The CPUC’s proposed decision concludes that WRAM is not working as intended and is unfair to customers and cites several reasons:
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Shifting Risk to Ratepayers: WRAM allows water utilities like Cal Am to pass the risk of bad forecasts and revenue loss onto customers. When businesses make poor revenue predictions, they typically bear that loss, but under WRAM, customers are left to make up the difference.
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Not Tied to Conservation: While WRAM was supposed to be a conservation program, it ended up acting more like a financial safety net for utilities. Cal Am was protected from general business risks, even those unrelated to conservation, at the expense of ratepayers.
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Fair Cost Distribution: The CPUC has a policy that customers should pay for the actual cost of the service they receive. WRAM went against this by creating extra charges unrelated to how much water people actually used, and that’s not fair to customers who have already worked hard to conserve water.
What’s Next?
Cal Am had proposed a new version of WRAM, rebranded as the Water Revenue Sustainability Program (WRSP), but the CPUC’s proposed decision rejects it for the same reasons. Instead, the CPUC will allow the CART system to continue, which we believe is a better and proven solution. CART encourages conservation without the added cost burden that WRAM created.
Additionally, Cal Am will still be able to collect the $20 million from previous WRAM surcharges. And in the case of a government-declared drought, utilities will still be able to use a different mechanism to recover revenue lost due to emergency water conservation.
The Public Advocates Office supports this proposed decision because it prioritizes fairness and ensures that customers only pay for the service they receive, rather than bearing the burden of a utility’s business risk and poor forecasting. We believe this decision strikes a better balance between encouraging water conservation and protecting the interests of ratepayers.
Please contact Mary Flannelly at mary.flannelly@cpuc.ca.gov if you’d like more information on this issue.