Prop 218 and Water Service Rates in Light of COVID-19

06.09.2020

As part of his response(s) to the threat of COVID-19, Governor Newsom declared a State of Emergency in California on March 4, 2020.  Following the emergency declaration, the Governor issued Executive Order N-33-20, directing all Californians to stay at home and to implement social distancing to preserve the State’s health and safety with the threat of COVID-19 spreading globally.  Additionally, the Governor issued Executive Order N-42-20 on April 2, 2020, which restricted the ability of water systems to terminate residential water service and service to small qualifying businesses.  It is important to note that currently there is no expiration or end date in Executive Order N-42-20 specified relative to the moratorium of water service shutoffs.

Recent events have led to an overall concern for the potential resulting financial impact on water providers.  For example, as a result of stay-at-home orders, residential water use has, in some areas, increased.  Yet, there has also been a significant rise in unemployment rates, leaving some Californians with less income to pay their bills.  Moreover, Executive Order N-42-20’s moratorium of water shutoffs due to non-payment during COVID-19 leaves retail water providers with limited options to recoup any non-payment losses until after the Governor’s emergency declaration is lifted or modified.  In addition, lower commercial and residential water demand has also led to a drop in revenue for some water providers.

As retail water providers contemplate their service rates and charges in order to deal with the impacts from the COVID-19 Executive Orders and social activity changes, it is important for these water providers to adhere to their obligations pursuant to the Proposition 218 (“Prop 218”), approved by the California electorate in November 1996 (found in Articles XIIIC and XIIID in the California Constitution).  Per Prop 218, retail water service rates may not exceed the reasonable costs associated with providing such service.  This means, for example, that losses in revenue due to commercial demand cannot be subsidized by residential customers.  Accordingly, due to the ongoing and lasting financial impacts from the current circumstances, water providers are encouraged to review and adhere to the procedures set forth in Prop 218 if new or increased water rates are necessary.

For more information related to water service rates and the procedures required by Prop 218 and the California Constitution, please contact our attorneys.

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