Water corporations: demand elasticity: rates and surcharges.

Senator Padilla's proposal to modify California's water utility regulations aims to decouple water corporation revenues from sales volume, mirroring existing practices for electrical utilities. The legislation would require water corporations serving more than 10,000 connections to implement revenue adjustment mechanisms through their triennial rate cases, preventing both overcollection and undercollection of authorized revenue when water consumption patterns change.

The bill directs the California Public Utilities Commission to authorize water corporations to establish rate stabilization funds and balancing accounts for long-term rate stability. These mechanisms would allow utilities to recover costs from conservation programs while maintaining approved revenue levels, addressing the financial challenges water providers face when consumption decreases. The commission must ensure that any rate changes or surcharges do not generate revenues beyond authorized amounts.

Under the legislation's findings, California faces increasingly frequent and severe droughts due to climate change, making water conservation essential for supply reliability. The bill acknowledges that water utilities' substantial fixed costs can create financial disincentives to promote conservation, as reduced consumption directly impacts cost recovery. By separating revenue from sales volume, the proposal aims to remove this barrier while maintaining utility financial stability.