Water corporations: demand elasticity.

Senator Padilla's water utility regulation measure extends existing financial safeguards for electrical corporations to California's water corporations, requiring the Public Utilities Commission to prevent material over- or under-collection of revenue due to errors in demand forecasting.

The legislation addresses a fundamental challenge in water conservation: utilities' fixed infrastructure costs remain constant even as consumption patterns change. Under current law, reduced water usage directly impacts utilities' ability to recover these fixed costs, potentially creating a disincentive for promoting conservation. The bill authorizes water corporations to implement revenue adjustment mechanisms that separate sales volume from revenue collection, mirroring protections already in place for electrical utilities.

The measure comes amid California's ongoing drought conditions and climate projections indicating more frequent water shortages. The bill's findings note the 2021 gubernatorial drought emergency declaration and emphasize water conservation's role in maintaining adequate supplies for environmental and human needs. By allowing water corporations to decouple revenue from sales volume, the legislation aims to remove financial barriers to conservation while maintaining utility operational stability.

Implementation would fall to the Public Utilities Commission, which must develop protocols for monitoring water corporations' revenue collection and adjusting for demand estimation errors. The commission's expanded oversight responsibilities would carry the same enforcement provisions as existing utility regulations, with violations classified as criminal offenses under the Public Utilities Act.