The California Supreme Court has overturned a ban issued by the state Public Utilities Commission in 2020, which prohibited water utilities from charging customers additional fees during periods of drought, citing that the ban was not clear enough in its notification.
In order to encourage water conservation and reduce the economic incentive to sell more water, the California Public Utilities Commission authorized water utilities in 2008 to charge customers additional fees when facing revenue shortfall due to water conservation.
Five affected water utilities stated that in 2020, the Commission canceled these additional fees known as “decoupling mechanisms” or “profit adjustment mechanisms” without proper notification.
However, the Public Utilities Commission argued that the water companies were informed throughout the process. The Commission also claimed that during rainy years or economic downturns, decoupling mechanisms could be abused as customer demand for gardening water decreases during these periods, leading people to conserve water.
The Commission believed that decoupling mechanisms reduced the incentive to control costs and shifted the risk from water companies to customers.
However, the Public Utilities Commission countered that water utilities were adequately notified throughout the process. The Commission also pointed out that decoupling mechanisms could be abused, for example, in years of abundant rain, customer demand for gardening water decreases, and during economic downturns, people conserve water.
The Public Utilities Commission believed that decoupling mechanisms reduced the incentive to control costs and shifted the risk from water utilities to customers.
The court’s opinion on July 8 was written by Justice Leondra R. Kruger on behalf of Chief Justice Patricia Guerrero and other judges, who unanimously agreed that the California Public Utilities Commission did not provide sufficient notification.
Kruger pointed out that the Commission failed to clearly inform the affected water companies that the additional fees would be canceled. She stated, “What we are concerned about is not the content of the decision but the process by which the decision was made. The issue is whether the Commission adequately notified the decoupling mechanism’s cancellation, which is one of the questions to consider in the lawsuit.”
“We believe the answer is no. Further, we believe the Commission failed to provide adequate notice, so we must revoke that order.” Kruger stated that the Public Utilities Commission’s assertion that a scope-defining memorandum had clearly notified water utilities of the cancellation of additional fees was not “persuasive” to the judges.
“Dajiyuan Times” has sought comments from the Public Utilities Commission on the court’s decision.