By Flavia Martini Andrade Da Silva
On July 8, 2024, the California Supreme Court overturned a 2020 decision by the CPUC that banned water utilities from using the Water Revenue Adjustment Mechanism (WRAM). Introduced in 2008, WRAM aimed to encourage water conservation by decoupling utility revenue from water sales, helping utilities cover losses from conservation efforts, and reducing their incentive to sell more water.
In 2020, the CPUC eliminated WRAM to improve water sales forecasting (predictions). The CPUC had argued that WRAM was ineffective at promoting conservation and proposed replacing it with a Monterey-Style Water Revenue Adjustment Mechanism, which was designed to be less comprehensive. Water companies, including Golden State Water and California-American Water, opposed this decision with an application for rehearing of decision before the CPUC, claiming it would destabilize their finances, undermine conservation efforts, and the water companies were not given proper notice to challenge the decision.
The issue before the California Supreme Court was whether the CPUC had adequately notified the utilities that WRAM’s elimination was being considered. The Supreme Court, led by Justice Kruger and supported by Chief Justice Guerrero and Justices Corrigan, Liu, Groban, Jenkins, and Evans, held that the CPUC’s failure to provide proper notice required the decision to be set aside. This allows utilities to continue proposing WRAM in future rate cases.
By overturning the CPUC’s 2020 decision, the Court reinforced the importance of regulatory bodies providing transparent notice and due process when making significant changes to established mechanisms, allowing proper participation and challenge by those impacted. As a result, the ruling requires the CPUC to reconsider its decision in compliance with procedural requirements. As of now, this decision reopens the possibility for water utilities to propose WRAM in future rate cases, ensuring that conservation efforts remain financially viable for the utilities.