1. Overview of a Water Action Plan: California Public Utilities Commission Paul G. Townsley, President Arizona American Water January 18, 2011

2. 2 Why Have A Water Action Plan? To create a policy vision to help guide Commission and Staff actions. To minimize ad-hoc programs, directions, and decisions. To send clear signals to water companies and other interested parties of the Commission’s long term goals for water. To enable Commissioners to set policy up front, rather than needing to react to a particular rate case at the end of the process.

3. 3 California Public Utilities Commission Water Action Plan

4. 4 Life Before the CPUC Water Action Plan No over-arching policies were in effect at CPUC regarding water utilities. Policy was established based on “conclusions in the last rate case” which led to erratic and sometimes conflicting decisions. Lack of over-arching policies led to decisions based on short-term cost.  Long-term issues such as sustainability, water conservation, and aging infrastructure were not always considered. Inconsistencies between energy utility decisions and water utility decisions led to sub optimization of Commission goals

5. 5 California PUC Water Action Plan Development Water Action Plan development led by the CPUC Executive Director. Workshop participation included CPUC Commissioners, CPUC staff, Consumer Advocate staff, water utilities, and other interested parties. Following workshops, a draft document was circulated to participants for review and comment. Water Action Plan was adopted by the CPUC on December 15, 2005. Water Action Plan has guided CPUC on water utility decisions over the past four years.

6. 6 Four Guiding Principles of CPUC Water Action Plan Safe High Quality Water Highly Reliable Water Supplies Efficient Use of Water Reasonable Rates & Viable Utilities

7. 7 Six Objectives of the CPUC Water Action Plan 1.Maintain Highest Standards of Water Quality 2.Strengthen Water Conservation Programs to a Level Comparable to those of Energy Utilities 3.Promote Water Infrastructure Investment 4.Assist Low Income Customers 5.Streamline CPUC Regulatory Decision-making 6.Set Rates that Balance Investment, Conservation, and Affordability

8. 8 Objective 1: Maintain Highest Standards of Water Quality Strengthen inter-agency relations with Department of Health Services Strengthen the CPUC’s role in water quality regulations and monitoring procedures Require water utilities to provide water quality reporting to the CPUC in their General Rate Case Filings Develop alternative funding mechanisms to address water quality infrastructure Provide incentives for acquisition or the operation of small private water utilities by larger private or municipal water utilities

9. 9 Objective 2: Strengthen Water Conservation Programs to a Level Comparable to those of Energy Utilities Encourage implementation of Best Management Practices developed by the California Urban Water Conservation Council. Encourage conservation/efficiency rate designs (such as increasing block rates) to promote greater water conservation. Remove current financial disincentives to water conservation. Establish utility financial incentives for greater conservation. Consider energy usage as an important outcome of all water policy decisions.

10. 10 Objective 3: Promote Water Infrastructure Investment Allow utilities’ CPUC-filed Water Management Program to serve as a basis for approval of needed infrastructure. Consider authorization of a Distribution System Improvement Charge (DSIC) to promote infrastructure improvements. Work with other state and local agencies toward the common goal of maintaining reliable water supplies. Provide timely compensation for water pollution clean-up costs that are due water utilities.

11. 11 Objective 4: Assist Low Income Customers Develop low-income rate assistance programs for water customers taking service from CPUC regulated water utilities. Consider a pooling mechanism as well as a standard low-income rate assistance program based on the results of individual company programs. Examine policy and legislative changes needed to address low-income consumers dwelling in multi-family housing.

12. 12 Objective 5: Streamline CPUC Regulatory Decision-making Adopt incentive regulation where feasible and effective. Streamline the existing process for review of cost of service and rate of return for all classes of water utilities. Evaluate efficiencies of consolidating rate cases. Use Alternative Dispute Resolution in place of time-consuming regulatory processes when a fair and efficient result can be accomplished.

13. 13 Objective 6: Set Rates that Balance Investment, Conservation, and Affordability Review utility rate case revenue requirements from the perspective of long-term investment and conservation, as well as shorter-term rate impacts. Set rates which provide sufficient revenue to promote adequate investment in infrastructure. Authorize a surcharge mechanism for direct reimbursement of Construction Work In Progress prior to plant start-up. Allow valid development costs to be recovered as they occur. Develop innovative policies to develop sources of funding needed for adequate infrastructure.

14. 14 What Has the CPUC Accomplished? Beginning to decouple sales and revenues Institution of tiered rate structures Updating water conservation rules and water service standards Increasing water utility conservation budgets Establishing schedules for general rate case filings Implementing low-income ratepayer assistance programs Initiating water/energy nexus programs The CPUC substantially met 23 of the 29 action items that were described in the Water Action Plan, including:

15. 15 CPUC Water Action Plan 2010 Increased use of recycled water Requiring leak detection programs Examining results of BMP usage Increase penetration of low-income programs Tracking customer service shutoffs Better monitoring of industry developments A new version of the plan, “ Water Action Plan 2020 Update” was approved by the CPUC on October 28, 2010. The 4 Guiding Principles and 6 Objectives remain unchanged, and nearly 30 new action items have been added, building on the original document, including:

16. 16 Why Should the Arizona Corporation Commission Develop a Water Action Plan? For the same reasons that the California Public Utilities Commission developed a Water Action Plan: To create a policy vision to help guide Commission and Staff actions. To minimize ad-hoc programs, directions, and decisions. To send clear signals to water companies and other interested parties of the Commission’s long term goals for water. To enable Commissioners to set policy up front, rather than needing to react to a particular rate case at the end of the process.

17. 17 How Can the Arizona Corporation Commission Develop a Water Action Plan? Build on existing efforts rather than reinvesting the wheel. Continue with the Special Open Meetings/Water Workshops that are now being scheduled over the next few months. Using these workshops, focus on developing over-arching policies for the Commission and its water utilities. Use existing documents – such as the California Water Action Plan as a basis for the creation of a Plan for Arizona. Have strong Commissioner involvement throughout the process to ensure “executive level” engagement in policy development.