SCGA Public Affairs

STATE’S LEGISLATIVE ANALYST ECHOES WATER PROVIDERS’ CRITICISMS OF SWRCB’S PROPOSED RULES

Monday, January 8, 2024

Back in early October we reported that the State Water Resources Control Board (SWRCB) was set to hold its first public hearing on the Proposed Rule it published August 18 to effectuate what the Governor and others had termed “Making Conservation a California Way of Life.”

As to what this “Proposed Rule” aimed to achieve, we summarized it generally as a new regulatory framework to establish individualized efficiency goals for each Urban Retail Water Supplier in the state based upon the unique characteristics of the supplier’s service area along with the flexibility to implement locally appropriate solutions.

We also pointed out that the exercise amounted to a reprise of the successful 20% by 2020 campaign that had been launched in the 1st decade of the 21st Century through the same 3-pronged process of Gubernatorial Order followed in turn by legislation directing SWRCB and DWR (Department of Water Resources) to adopt regulations to enable the Order. More specifically, we pointed out that the authority for SWRCB’s envisaged Rule came from two (2) sources: 1) Legislation adopted in 2018 (AB 1668 and SB 606) directing the State Water Board to adopt efficiency standards and performance measures for commercial, industrial, and institutional water use; and 2) the Executive Branch’s August 2022 “Water Supply Strategy” summarizing four (4) broad areas of state action comprising the State’s coordinated strategy for continued water resiliency, the four (4) being: Developing new water supplies, expanding water storage capacity above and below ground by four million acre-feet, reducing demand (conservation), and improving forecasting, data, and management, including water rights modernization.

We summarized the Proposed Rule very specifically as requiring suppliers to annually calculate their objective, defined as the sum of efficiency budgets for a subset of urban water uses, i.e., residential indoor water use, residential outdoor water use, real water loss and commercial, industrial, and institutional landscapes with dedicated irrigation meters. Each efficiency budget would be calculated using a statewide efficiency standard and local service area characteristics such as population, climate, and landscape area. Where relevant, suppliers would be permitted to include in their objective “variances” for unique uses, or a bonus incentive for potable recycled water use. Suppliers would need to meet the overall objective, not each individual budget. It would ONLY be “Urban Retail Water Suppliers” – not individual households or businesses – that would be held to the annual “urban water use objectives” developed thereby.

We concluded that early October “Update” with the obvious: That most of California’s golf courses are served by “Urban Retail Water Suppliers,” and just as 20% by 2020 proved impactful to the California golf community in terms both of access and price, this reprise of that same exercise would prove just as impactful.

SWRCB posted the “Proposed Rule” in August, conducted a mammoth public hearing on it in October, and the Legislative Analyst Office (LAO) issued its “assessment” of it last week. In between a large number of water providers issued their assessment of it, and the comments were not warm to say the least.

Neither was the assessment of the LAO.

Rather than summarize the LAO’s critical assessment, we share the following conclusions drawn verbatim from the LAO’s Executive Summary:

SWRCB’s Proposed Regulations Create Implementation Challenges and Go Beyond What Legislation Requires or DWR Recommends. We find that SWRCB’s proposed regulations will create challenges for water suppliers in several key ways, in many cases without compelling justifications. Specifically, the proposed regulations:

  • Add Complexity. The performance measures suppliers must implement for commercial customers are unnecessarily complex, lack clarity in places, and will be administratively burdensome to implement. Outdoor water use by these customers represents only a small fraction (less than 3 percent) of the state’s total water use. Any savings achieved would be small and come at a large cost to suppliers.
  • Could Be Difficult to Achieve. Although suppliers only have to achieve an aggregate WUO {water use objective} — and not each of the individual standards for indoor and outdoor use— SWRCB proposes such stringent standards for outdoor use that suppliers will not have much “wiggle room” in complying. That is, suppliers may necessarily have to achieve each individual standard if they hope to achieve their overall WUOs.
  • Add Significant Costs. The new framework is estimated to result in cumulative costs in the low tens of billions of dollars from 2025 through 2040. These costs will be borne primarily by suppliers, wastewater agencies, and customers. Particularly in the near term, suppliers’ costs will increase as they attempt to implement the new requirements, such as from providing incentives for residents to make behavioral changes like converting their lawns to more drought tolerant landscapes. Whether the benefits of the new rules ultimately will outweigh the costs is unclear. While an assessment from SWRCB estimates a cumulative net benefit of $2.5 billion, an independent review conducted by a private consulting firm—which raises credible questions about SWRCB’s estimates—projects net costs of $7.4 billion. Moreover, even if benefits outweigh costs in the long run, whether they merit the amount of work and costs to implement the requirements as currently proposed is uncertain.
  • Could Disproportionately Affect Lower-Income Customers. To cover added costs and offset potential revenue reductions from selling less water, suppliers likely will have to increase customer rates. This could adversely impact lower-income customers, who may have more trouble affording the increases and may have less ability to further reduce water use to compensate. Existing constitutional rules make it difficult for suppliers to offer rate assistance programs.
  • Build in Aggressive Timelines. Although the requirements are phased in over multiple years, the timeline for full implementation may be too aggressive given the number of changes that will have to occur to achieve the level of conservation envisioned. In addition, although SWRCB is two years behind adopting final rules, suppliers’ deadlines (which are set in statute) have not been correspondingly adjusted.
  • Even Modest Water Savings Could Help with Resilience but Will Depend on How the State Manages Those Savings. SWRCB estimates the state could conserve about 440,000 acre-feet of water annually at full implementation, which represents about 1 percent of total state water use. Although this amount of water conservation is modest, it could increase the state’s overall drought resilience if it helps align demand with lower water supplies in dry years. In wet years, the water potentially could be stored for use during drought periods. However, the 2018 legislation did not address how to track and manage these potential water savings. Doing so will be key to maximizing the benefits of these conservation efforts. Urban water savings during wet years will only help local suppliers and/or the state better manage and meet California’s water needs during periods of drought if they are targeted effectively.

    Recommendations for Legislative Consideration. To ease suppliers’ administrative burden and potentially reduce costs, we recommend the Legislature use its oversight authority to make several changes to the framework in the near term as well as at key milestones over the coming years. In early 2024, the Legislature could direct SWRCB to simplify several aspects of the framework, such as requirements concerning suppliers’ commercial customers. We also suggest that the Legislature require DWR to provide more technical assistance to suppliers, direct SWRCB to make several of the proposed requirements less stringent (such as the residential outdoor standard), consider how to target state funding to assist lower-income customers, and extend some of the deadlines for suppliers to ensure they can actually achieve the framework’s goals. Finally, to increase the state’s resilience during droughts, we recommend the Legislature develop a strategy to manage and take advantage of any water saved due to these regulations. This is a fundamental step in ensuring that water conserved during wet years is effectively helping to meet the state’s ultimate goals.

    We offer three (3) thoughts in conclusion: 1) The details here are great, but that’s where the devils and angels always reside, 2) the disciplining virtues of practicality and reasonableness routinely surface to temper overweening aspiration, and 3) the wise words of MWD General Manager Adel Hagekhalil come to mind: Conservation will always be a key tool in California’s water resiliency toolbox, but if it is the only tool, California fails.

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