4. Conservation Goal for Class A Water Utilities

The WAP recommended means to achieve the stated objective of strengthening water conservation programs to a level comparable to those of energy utilities, and this OII expanded upon those principles. Neither in the WAP nor in the OII did the Commission quantify that objective.¹⁰ As DRA noted at the hearings, the settlements' rate structures were based on actual consumption and provide an economic incentive to cut consumption to a point that had not been defined.¹¹ It is appropriate to preliminarily quantify at this time the overall goal for water conservation, absent drought or other extraordinary conditions, in order to provide guidance in adopting conservation rates and other conservation programs. We recognize that we did not signal our intent to examine this issue. Nonetheless, we prefer an overall policy objective to the narrower objectives CFC advances. We will adopt this goal, preliminarily quantify it, and take input from the parties on the targeted reduction in consumption in Phase 2 of this proceeding.

The Pacific Institute (Institute), using a Department of Water Resources model, projects that improvements in water use efficiency could result in a 20% reduction in consumption in 30 years (between 2000 and 2030).¹² The Institute's high efficiency scenario is based on widespread adoption of existing efficiency technologies and an annual increase in price of 1.1% (based on actual urban water price increases between 1991 and 2001). We also have reviewed the overall water conservation goals of a number of California municipal utilities (Santa Clara Valley Water District, Eastern Municipal Water District, and EBMUD) and compared those objectives with Utah's and the Southern Nevada Water Authority's. Our review focused on urban water programs that express a non-drought conservation objective as a percentage reduction in water consumption, either as a per capita or overall objective. These goals vary but are generally in the range of 12.5% to 25% over a varying number of years. These goals are consistent with the anticipated reduction of 10%-20% over 10 to 20 years that can result from a carefully designed conservation program.¹³ Since Class A water utilities operate on a three-year rate case cycle, our goal for water conservation should range, at a minimum, from a 3%-6% reduction in per customer or service connection consumption every three years once a full conservation program, with price and non-price components, is in place. The goal of a targeted reduction in consumption shall apply to all Class A water utilities, whether we review conservation rate designs in this proceeding, in separate applications, or as part of their GRCs.¹⁴

Since we are adopting conservation rates outside of the general rate case cycle for CalWater, Park, and Suburban, a realistic target for the conservation rate designs adopted in this decision should be a 1%-2% reduction in consumption per year for each year or partial year the program is in place prior to the utility's next rate case. This annual target should apply to all other Class A water utilities with conservation rates until we have a full conservation program, with price and non-price components, in place.¹⁵ We will examine the specific targeted reduction in Phase 2 of this proceeding.

The reductions in consumption we finalize at the conclusion of Phase 2 shall apply to all customer classes. Class A water utilities shall meet these targets for residential, commercial and industrial classes if conservation rates are adopted for each customer class. In Phase 2, we will determine whether we should express this goal as a range or should adopt a specific percentage reduction. If a utility with conservation rates does not meet this goal, or does not meet the goal for a customer class, the utility will adjust its conservation rate design to prospectively meet the goal in its next GRC. Since we did not express a desired reduction in consumption prior to consideration of the proposals before us, there will be no "penalty" for failure to meet the target we finally adopt. We should adopt an initial target for a reduction in consumption for the trial programs and should consider a longer range goal that will apply to conservation rates adopted after these trial programs.

In adopting a conservation goal for Class A water utilities that sets a target for a reduction in consumption, we address CFC's concerns that policy issues should be resolved before implementing conservation rate designs. We favor this broad approach, adopting an overall reduction in consumption, because it permits individual utilities latitude to meet this goal through price and non-price

policies. It also is consistent with the flexibility inherent in the assigned Commissioner's determination that the parties could continue settlement discussions and address in the settlements or motions urging their adoption the policy issues raised in this OII. Although we reject CFC's specific policy recommendations in favor of an overall goal, we do so without determining whether those recommendations might advance our policy goal. We next will consider CFC's specific objections to the Suburban, CalWater, and Park settlements.

¹⁰ In D.07-05-062, we asked Class A water utilities to submit a plan to achieve a 5% reduction in average customer water use over the three-year GRC cycle. (Appendix A, Attachment 1, section I.F.) We did not require that water utilities meet this goal. (D.07-05-062, mimeo, p. 23.)

¹¹ Testimony of Tatiana Olea, 2 Reporter's Transcript (RT) 268:15-20.

¹² Peter H. Gleick, Heather Cooley, David Groves, California Water 2003: An Efficient Future, pp. 2, 5. http://www.pacinast.org/reports/california_water_2030/ca_water_2030.pdf

¹³ William Maddaus, Gwendolyn Gleason, and John Darmody, Integrating Conservation into Water Supply Planning, p. 1. http://www.mwhglobal.com/pdf/white_paper_integrating_water_5_17_99.pdf

¹⁴ Until we finalize a targeted reduction in consumption, Class A water utilities shall comply with D.07-05-062's required water conservation plan by stating how price and non-price programs will achieve reductions of 1% to 2% annually during the GRC cycle.

¹⁵ California American Water Company's (CalAm) Monterey district is exempt from this requirement. Its conservation rates have been in place since 1996.