Update: Water Conservation OII LIOB Meeting – September 2010 Carolina Contreras CPUC – Division of Water and Audits

Water Conservation OII: Background  2005 Water Action Plan Objectives  Strengthen Water Conservation programs: 1.Promote meter service. 2.Educate water industry stakeholders. 3.Utility participation in UWCC in implementation of Conservation BMP’s. 4.Encourage conservation and efficiency rate designs. 5.Remove financial disincentives. 6.Establish financial incentives. 7.Consider Water/Energy nexus conservation. 8.Collaboration w/ EPA on greenhouse emission reduction.

Water Conservation OII: Background Cont. Water Conservation OII opened on January 11, 2007 to consider:  Conservation rate designs.  Cost recovery mechanisms.  Related policies to achieve the Commission’s conservation objectives. i.e. Impact of increasing block rates on low-income customers.

Water Conservation OII: Phases Phase I: Rate-Related Conservation Measures Phase II: Non-Rate Design Conservation Measures and Related Policy Issues – Currently open

Water Conservation OII: Phase I – Rate Related Issue Focused on addressing water conservation rates and cost recovery mechanisms for residential customers, including:  Increasing block rate structures  Decoupling sales from revenue  Setting interim water conservation targets (3% - 6% reduction) Parties involved: many of the Class A utilities, DRA, The Utility Reform Network, Latino Issues Forum, Disability Rights Advocates, Consumer Federation of California, National Consumer Law Center and other interested parties.

Water Conservation OII: Phase I D Phase IA, February 8, 2008 D Phase IB, August 21, 2008  Adopted pilot conservation rate design programs for some of the large Class A water utilities. Phase IAPhase IB Cal-WaterGolden State Water Park WaterSan Jose Water Suburban Water  Adopted Low-Income Rate Assistance (LIRA) program for Suburban Water.  Rejected proposal to adjust return on equity. D , Cal-Am Los Angeles District

Water Conservation OII: Phase I – Pilot Conservation Programs  Pilot Program elements adopted through multi- party settlement agreements include: Conservation rates Conservation rates To create pricing structures to encourage conservation. To create pricing structures to encourage conservation. Financial Mechanisms Financial Mechanisms To remove investor-owned water utilities’ financial disincentive to implement conservation rates and programs To remove investor-owned water utilities’ financial disincentive to implement conservation rates and programs Outreach and Customer Education Outreach and Customer Education To maximize the benefits achieved through water conservation and ensure that all customers understand the impact the program. To maximize the benefits achieved through water conservation and ensure that all customers understand the impact the program. Data Collection and Program Reporting Data Collection and Program Reporting To track data for use in analyzing customer response to the conservation rates, especially impact on low-income customers. To track data for use in analyzing customer response to the conservation rates, especially impact on low-income customers.

Pilot Conservation Programs: Conservation Rates Create pricing structures that encourage conservation.  Increasing block rate structures with: two or three tiers two or three tiers reduced rate for water in the first tier and/or reduced service charge reduced rate for water in the first tier and/or reduced service charge an increased rate at the upper tiers an increased rate at the upper tiers  Parties allowed to negotiate tier levels and rate differentials based on the specific water consumption of the ratemaking district.  Some contain a seasonal adder during the summer months (Cal- Am’s Los Angeles District).  The breakpoints and pricing of tiers 1 and 2 take low-income affordability into account in that they decrease the likelihood that larger households will enter the higher tiers too soon.  Revenue neutral.

Pilot Conservation Programs: Financial Mechanisms Remove investor-owned water utilities’ financial disincentive to implement conservation rates and programs.  Decouple water sales from revenues through: Water Rate Adjustment Mechanism (WRAM) Water Rate Adjustment Mechanism (WRAM) Allows recovery or crediting of difference between actual and adopted quantity charge revenues.Allows recovery or crediting of difference between actual and adopted quantity charge revenues. Modified Cost Balancing Account (MCBA) Modified Cost Balancing Account (MCBA) Allows recovery or crediting between actual and variable costs associated with purchased power, purchased water and pump tax.Allows recovery or crediting between actual and variable costs associated with purchased power, purchased water and pump tax.

Conservation Pilot Programs: Outreach and Education Maximize benefits achieved through water conservation efforts ensuring all customers understand and know program. Activities agreed to by most implementing utilities include:  Information notices and/or billing inserts on conservation programs and rates to be provided in English and other languages, i.e. Spanish.  Accessible means of communication.  Coordinated development and/or dissemination of conservation information with DRA and/or CBO’s.  DRA or Public Advisor to review customer notices.  Focus on water conservation programs for low income customers in addition to other cost-effective programs.

Conservation Pilot Programs: Reporting and Data Collection Track data for use in analyzing customer response to the conservation rates, especially impact on low-income customers.  Usage data with changes in consumption by class, meter size, billing Tiers, including breakdown for low-income customer group.  Customer profile, some with a separate profile low-income customer group.  Annual number of customers in each class.  Arrearages, reconnections, disconnections, and 48-hour shut-off notices, including breakdown for low-income customer group. Additional low-income data agreed to by Suburban:  Number of customers participating by month  Annual penetration rate  Changes in participation rate after mailing of notices  Costs and expenses of LIRA program not already tracked by the balancing account

Water Conservation OII: Phase I – Adopted Suburban’s LIRA program  Last class A water utility remaining to implement LIRA program.  Discount of $6.50, which corresponds to 50% of the service charge prior to the implementation of the conservation rates.  Fixed discount on the service charge adopted instead of a percentage discount on the total bill.  Commission found fixed discount is more consistent with conservation rates.  Commission recognized that fixed and percentage discounts both have merit, the first with respect to conservation and the second when it comes to large household with higher usage.  Commission recommended that further monitoring of the fixed discount should take place to assess its impact on large households.

Water Conservation OII: Pilot Conservation Rate Programs  To be re-evaluated in the next GRC for each water utility.  GRC to address the following: Conservation rates for non-residential customers Conservation rates for non-residential customers Financial incentives for utilities to meet targets Financial incentives for utilities to meet targets Plans to transition between tiers; Plans to transition between tiers; Increasing break points between tiers; and Increasing break points between tiers; and Setting first tier break point closer to average winter consumption. Setting first tier break point closer to average winter consumption.

Smaller Class A water utilities’ pilot conservation rate programs 1.San Gabriel Valley Water Company – adopted in D ; 2.Valencia Water Company – pending before Commission; 3.Great Oaks Water Company – pending before Commission.

Water Conservation OII: Phase II - Non-Rate Related Conservation and Policy Issues  Phase II scoping memo was issued on February 8, 2008  Issues included: Best Management Practices (BMP’s) Best Management Practices (BMP’s) Adopting Goals, Performance Metrics, and Reporting Requirements for Conservation Adopting Goals, Performance Metrics, and Reporting Requirements for Conservation Integrated Resource Water Management (IWRN) Integrated Resource Water Management (IWRN) Water Shortage Event Planning Including Drought Planning Water Shortage Event Planning Including Drought Planning Low-Income Customers Low-Income Customers Energy Savings (GHG issues) Energy Savings (GHG issues)  Scoping memo noted that the Commission would take comment on a broad range of issues but would not make findings on all of them.

Water Conservation OII: Phase II – Low-Income Customer Issues Deferred  By amended scoping memo, issued on June 30, 2009, low-income issues, data integration, and water recycling were deferred to future generic proceedings.  Due to the new requirements of the Water Code that impact the statewide data integration process, by amended scoping memo issued on January 6, 2010, the Commission found it necessary to address data integration in this proceeding.

Water Conservation OII: Phase II - Workshops The Commission’s Policy and Planning Division held three Phase II workshops addressing: 1. Water recycling on June 24, 2009; 2. Statewide Water Use Data Integration on July 20, 2009; 3. Water use data integration, water conservation policies and the need for coordination among the state’s water agencies in light of the amendments to the Water Code contained in SBX7 7, on January 21, 2010.

Water Conservation OII: Phase II September Workshop  A workshop set for September 13 and 14, 2010 was set to address Baseline for conservation/water use goals Baseline for conservation/water use goals A protocol for streamlining conservation data reporting; and A protocol for streamlining conservation data reporting; and Steps Class A water utilities must take in their GRC’s to convert to per capita water use reporting. Steps Class A water utilities must take in their GRC’s to convert to per capita water use reporting.

Water Conservation OII: Phase II September Workshop Cont.  Consideration of standardizing the Commission’s conservation data reporting requirements would move Class A water utilities towards the standardized reporting of water use. The Commission has numerous conservation data requirements, including LIRA data requiremenrs adopted in this and other proceedings. The Commission has numerous conservation data requirements, including LIRA data requiremenrs adopted in this and other proceedings. An assessment of those reporting requirements will assist in standardizing reporting requirements. An assessment of those reporting requirements will assist in standardizing reporting requirements.

Standardized Conservation Data Reporting Requirements for LIRA to be explored in Workshop Standardized Conservation Data Reporting Requirements for LIRA to be explored in Workshop Proposed standardized reporting requirements will assist in evaluating the impact of conservation rates on low-income customers. These include:  Number of low income participants disconnected for nonpayment by ratemaking division for two years before adoption of conservation rate design and for each year after that adoption.  Number of residential disconnections for nonpayment by ratemaking division for two years before adoption of conservation rate design and for each year after that;  Incidences, if any, by ratemaking division of apparent impact upon large, extended or multi-family households due to two-tier rate design;  Increase or decrease in low-income program participation by district after adoption of conservation rate designs;  Data to support the development of conservation programs targeting low- income customers;

September Workshop to Consider other Conservation Data issues related to Low-Income Including:  how to report on low-income conservation program achievements, and  Tracking low-income ratepayer assistance data to determine the effectiveness of conservation programs on low-income customers

Water Conservation OII – Phase II Timeline  Decision anticipated to address recommendations resulting from September workshop.  The deadline for completing the proceeding was extended to March 31, 2011.

Water Conservation Related Low- Income Issues to be Considered in Future Proceedings  Measuring impact of conservation programs on low- income consumer.  Multi-family units and benefits from conservation programs.  Consistency of LIRA programs with water conservation programs.  Coordination between Class A water utilities and energy utilities and/or CBO’s for the provision of conservation information and tools to low-income, disabled and multifamily housing customers.