On July 8, 2024, the California Supreme Court issued its opinion in Golden State Water Company v. Public Utilities Commission. The petitioners, California Water Association, California-American Water Company, California Water Service Company, Golden State Water Company, Liberty Utilities (Park Water) Corporation and Liberty Utilities (Apple Valley Ranchos Water) Corporation, sought review of a 2020 California Public Utilities Commission (CPUC) decision that prohibited regulated water utilities from continuing to employ a decoupling ratesetting mechanism known as the Water Revenue Adjustment Mechanism. The CPUC regulates investor-owned water service providers. The Court set aside portions of the CPUC decision that prohibited continuation of the decoupling mechanism. A Nossaman team led by Lori Anne Dolqueist, Willis Hon, Martin Mattes and Alex Van Roekel represented three of the petitioners.

The CPUC first approved decoupling for investor-owned water utilities in 2008, and it acted as an important tool for water utilities in aggressively promoting water conservation. In 2020, however, the CPUC issued Decision 20-08-047, in which it prohibited water utilities from proposing to continue their decoupling mechanisms in their next general rate cases. The petitioners sought rehearing, raising multiple procedural and substantive issues, notably that the CPUC failed to provide notice that elimination of decoupling mechanisms was within the scope of the underlying proceeding. The CPUC denied rehearing, rejecting the argument that the parties lacked notice.

Judicial review of water CPUC decisions is only by petition for writ of review to the CA Supreme Court, and is limited to the issue of whether the CPUC has regularly pursued its authority. This is only the second time in two decades that the Supreme Court has issued a writ of review of a CPUC water decision.

The CPUC asked the Court to dismiss review on the grounds that legislation that went into effect in 2023 rendered the case moot. In September 2022, Governor Newsom signed Senate Bill No. 1469, which modified the California Public Utilities Code to require the CPUC to consider shall consider decoupling mechanisms upon application by regulated water utility more than 10,000 service connections. The Court concluded that the difference between the relief sought by the petitioners and the opportunity provided by Senate Bill No. 1469 were sufficiently different to save the case from mootness. The Court also noted that even if the case were technically mooted, it could decide the case on the merits because the public interest favors resolution of an important question.

Proceeding to the substance of the challenge to the CPUC’s decision, the Court determined that the CPUC failed to regularly pursue its authority when it prohibited water utilities from proposing to continue their decoupling mechanisms because the scoping memo for the underlying proceeding did not provide adequate notice of the possible elimination of the mechanisms. The Court found that the CPUC’s scoping memo failed to describe the issues to be considered at a basic level and set aside the portion of D.20-08-047 forbidding companies from proposing to continue decoupling mechanisms, as well as the accompanying findings and conclusions.

Decoupling removes conservation disincentives, addresses the substantial variability of water sales, and allows water service providers to maximize conservation efforts. Given the challenges water service providers face, it is likely to become a key conservation tool for both public and private water service providers. Beginning in 2023, pursuant to Senate Bill No. 1469, several water utilities proposed decoupling mechanisms in CPUC applications, all of which are currently pending. The Supreme Court’s opinion in Golden State Water Company, which references California’s water challenges in its very first sentence, removes a possible obstacle to CPUC approval of decoupling mechanisms.

To read more about the issue of decoupling, please see the article on this topic in Nossaman’s 2024 California Water Views – 2024 Outlook.