Assessing Early Implementation of Urban Water Use Efficiency Requirements

2024-25 BUDGET Assessing Early Implementation of Urban Water Use Efficiency Requirements GABRIEL PETEK | LEGISLATIVE ANALYST JANUARY 2024 www.lao.ca.gov 1 AN LAO REPORT 2 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Executive Summary Legislation approved in 2018 established a long-term urban water use efficiency framework to “Make Conservation a California Way of Life.” This framework—which is one component of the state’s overall water management strategy—creates new requirements for about 405 urban retail water suppliers that supply water to nearly 95 percent of state residents. This report responds to a requirement contained in the 2018 legislation for our office to assess implementation of the framework. (Our report is not able to address every aspect requested in the legislation due to framework implementation delays.) Establishes New Requirements for Urban Retail Water Suppliers. Under the new framework, each supplier’s actual water use for the previous year will be evaluated against a “water use objective” (WUO), which represents the amount of water its customers would have needed that year if water were being used efficiently. Beginning in 2027, the state can assess penalties against suppliers whose actual water use exceeds their WUOs. A supplier’s unique WUO is the sum of several factors: calculated standards for residential indoor and outdoor water use, commercial outdoor water use, and a certain amount of water that is lost due to system leaks. It also allows suppliers to use additional water for certain unique purposes and encourages water reuse. Additionally, the framework requires suppliers to implement a variety of performance measures for its commercial customers and report on that progress annually. Tasks State Agencies With Implementation and Oversight Responsibilities. The 2018 legislation requires the State Water Resources Control Board (SWRCB) to adopt regulations to implement the framework, informed by studies and recommendations by the Department of Water Resources (DWR). The board released proposed regulations in August 2023 and expects to adopt final regulations in the summer of 2024 (regulations would then take effect October 1, 2024). Based on the board’s proposed rules and published data, suppliers collectively will have to reduce statewide water use by 14 percent to achieve the aggregate 2035 WUOs, with certain suppliers facing much higher reductions—particularly many that are located in the inland regions of the state. These cutbacks will be on top of significant urban water use reductions achieved over the past two decades. SWRCB’s Proposed Regulations Create Implementation Challenges and Go Beyond What Legislation Requires or DWR Recommends. We find that SWRCB’s proposed regulations will create challenges for water suppliers in several key ways, in many cases without compelling justifications. Specifically, the proposed regulations: • Add Complexity. The performance measures suppliers must implement for commercial customers are unnecessarily complex, lack clarity in places, and will be administratively burdensome to implement. Outdoor water use by these customers represents only a small fraction (less than 3 percent) of the state’s total water use. Any savings achieved would be small and come at a large cost to suppliers. • Could Be Difficult to Achieve. Although suppliers only have to achieve an aggregate WUO—and not each of the individual standards for indoor and outdoor use— SWRCB proposes such stringent standards for outdoor use that suppliers will not have much “wiggle room” in complying. That is, suppliers may necessarily have to achieve each individual standard if they hope to achieve their overall WUOs. www.lao.ca.gov 3 AN LAO REPORT • Add Significant Costs. The new framework is estimated to result in cumulative costs in the low tens of billions of dollars from 2025 through 2040. These costs will be borne primarily by suppliers, wastewater agencies, and customers. Particularly in the near term, suppliers’ costs will increase as they attempt to implement the new requirements, such as from providing incentives for residents to make behavioral changes like converting their lawns to more drought tolerant landscapes. Whether the benefits of the new rules ultimately will outweigh the costs is unclear. While an assessment from SWRCB estimates a cumulative net benefit of $2.5 billion, an independent review conducted by a private consulting firm—which raises credible questions about SWRCB’s estimates—projects net costs of $7.4 billion. Moreover, even if benefits outweigh costs in the long run, whether they merit the amount of work and costs to implement the requirements as currently proposed is uncertain. • Could Disproportionately Affect Lower-Income Customers. To cover added costs and offset potential revenue reductions from selling less water, suppliers likely will have to increase customer rates. This could adversely impact lower-income customers, who may have more trouble affording the increases and may have less ability to further reduce water use to compensate. Existing constitutional rules make it difficult for suppliers to offer rate assistance programs. • Build in Aggressive Time Lines. Although the requirements are phased in over multiple years, the time line for full implementation may be too aggressive given the number of changes that will have to occur to achieve the level of conservation envisioned. In addition, although SWRCB is two years behind adopting final rules, suppliers’ deadlines (which are set in statute) have not been correspondingly adjusted. Even Modest Water Savings Could Help With Resilience, but Will Depend on How the State Manages Those Savings. SWRCB estimates the state could conserve about 440,000 acre-feet of water annually at full implementation, which represents about 1 percent of total state water use. Although this amount of water conservation is modest, it could increase the state’s overall drought resilience if it helps align demand with lower water supplies in dry years. In wet years, the water potentially could be stored for use during drought periods. However, the 2018 legislation did not address how to track and manage these potential water savings. Doing so will be key to maximizing the benefits of these conservation efforts. Urban water savings during wet years will only help local suppliers and/or the state better manage and meet California’s water needs during periods of drought if they are targeted effectively. Recommendations for Legislative Consideration. To ease suppliers’ administrative burden and potentially reduce costs, we recommend the Legislature use its oversight authority to make several changes to the framework in the near term as well as at key milestones over the coming years. In early 2024, the Legislature could direct SWRCB to simplify several aspects of the framework, such as requirements concerning suppliers’ commercial customers. We also suggest that the Legislature require DWR to provide more technical assistance to suppliers, direct SWRCB to make several of the proposed requirements less stringent (such as the residential outdoor standard), consider how to target state funding to assist lower-income customers, and extend some of the deadlines for suppliers to ensure they can actually achieve the framework’s goals. Finally, to increase the state’s resilience during droughts, we recommend the Legislature develop a strategy to manage and take advantage of any water saved due to these regulations. This is a fundamental step in ensuring that water conserved during wet years is effectively helping to meet the state’s ultimate goals. 4 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT INTRODUCTION Two Laws Approved in 2018 Require Implementation Delays Limit the Scope of Long-Term Water Use Efficiency. Chapters 14 Our Report. The time line for implementation of (SB 606, Hertzberg) and 15 (AB 1668, Friedman) of the urban water use efficiency framework has been 2018 established a framework to guide the creation delayed somewhat—in part due to the COVID-19 and implementation of new long-term urban water pandemic—and final regulations now are not use efficiency requirements. They require urban scheduled to take effect until October 1, 2024. water suppliers to develop and achieve objectives Consequently, we are unable to conduct the data for efficient water use based on local conditions analysis called for by SB 606 or to comment on the and population. (While these laws primarily rate of compliance among urban water suppliers concern urban water use, to a lesser degree they or the frequency of use of the bonus incentive also address agricultural water use efficiency, since regular reporting will not begin in earnest require drought contingency planning, and seek until 2025. However, we are able to provide an improvements for small rural communities.) early assessment of the proposed regulations and This Report Responds to a Statutory potential implementation challenges. Requirement. Senate Bill 606 required our Overview of Report. This report has three major office to assess implementation of urban water sections. In the “Background” section, we describe use efficiency standards and urban water urban water suppliers, how water use efficiency supplier reporting by submitting a report by fits into the state’s approach to water supply January 10, 2024 to the appropriate policy management, and the 2018 laws that created committees of both houses of the Legislature and to the urban water use efficiency framework. In the the public. Figure 1 displays the specific statutory “Assessment” section, we discuss potential impacts reporting requirements. to various urban water suppliers, the regulations proposed by the State Water Resources Control Figure 1 Legislative Analyst Directed to Evaluate Implementation of Water Conservation Laws LAO Statutory Reporting Requirements Contained in Chapter 14 of 2018 (SB 606, Hertzberg) 9 The rate at which urban retail water users are complying with the standards and factors that might facilitate or impede their compliance. 9 The accuracy of the data and estimates being used to calculate urban water use objectives. 9 Indications of the economic impacts, if any, of the implementation of this chapter on urban water suppliers and urban water users, including commercial, industrial, and institutional water users. 9 The frequency of use of the bonus incentive, the volume of water associated with the bonus incentive, value to urban water suppliers of the bonus incentive, and any implications of the use of the bonus incentive on water use efficiency. 9 The early indications of how implementing this chapter might impact the efficiency of statewide urban water use. 9 Recommendations, if any, for improving statewide urban water use efficiency and the standards and practices described in this chapter. 9 Any other issues the Legislative Analyst deems appropriate. www.lao.ca.gov 5 AN LAO REPORT Board (SWRCB), challenges urban water suppliers changes the Legislature could make through its face in complying with the proposed regulations, oversight authority to ease administrative burdens and impacts on lower-income communities. We also and potentially reduce costs for suppliers. We also consider potential water savings that could result recommend the Legislature plan for how any water from the implementation of this framework. In the savings that result from these new requirements “Recommendations” section, we suggest some could be tracked and used. BACKGROUND URBAN WATER SUPPLIERS SERVE least 3,000 service connections or provides at least 3,000 acre-feet of water annually. (An acre-foot is RESIDENTS AND BUSINESSES the amount of water that would cover one acre of Urban Water Use Represents About land to a depth of one foot.) These include retail 10 Percent of Overall State Water Use. As shown water suppliers (that provide water directly to in Figure 2, urban water use typically accounts for customers) and wholesale water suppliers (that around 10 percent of the state’s annual water use. sell water to retail suppliers). Some wholesale By comparison, around 40 percent is typically used suppliers are also retail providers. Many urban for agricultural irrigation and about 50 percent for water suppliers are public entities—such as environmental water. (Environmental water includes cities, counties, or special districts—while some water used for managed wetlands, minimum are private investor-owned utilities. Public water required Delta outflow, instream flow requirements, suppliers serve about eight in ten Californians. and Wild and Scenic Rivers.) As the figure also shows, the majority of urban water consists of residential Figure 2 use (which makes up about Average Annual Water Use in California 6 percent of total state water use), Water Years 2018-2020 with less going toward commercial, industrial, and institutional (CII) purposes (about 3 percent of total state use) and for conveyance, groundwater recharge, and energy Otherb 1% production (about 1 percent of total Environmental state use). (CII includes water used Watera CIIc 3% by businesses, manufacturers, 47% and public-serving entities, such Urban 11% as schools, as well as for large Residential 6% landscapes, such as parks.) Irrigated Agriculture Urban Water Suppliers 43% Provide Water to Most Californians. More than 400 urban water suppliers provide potable (drinkable) water to most of a Environmental water includes water used for managed wetlands, minimum required Delta outflow, instream the state’s population. Statute flow requirements, and Wild and Scenic Rivers. b Other includes urban water used for conveyance, groundwater recharge, and energy production. defines an urban water supplier c CII includes urban water used by businesses, manufacturers, and public-serving entities, such as schools, as well as for large landscapes, such as parks. as one that provides water for Note: Amounts may not add due to rounding. municipal purposes and has at CII = Commercial, industrial, and institutional. 6 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Suppliers Serve Residential and CII uniform rate for each unit of water used. Customers. Urban water suppliers provide water A more complex rate structure, often called for indoor and outdoor purposes for residents, a tiered rate structure, can be designed to as well as for CII customers. Some suppliers may discourage overuse (so long as it adheres to work with customers to encourage the use of Proposition 218 requirements). For example, dedicated irrigation meters to track and manage the the rate per unit of water used might increase amount of water used for outdoor irrigation of lawns after a certain total volume of water is and landscapes, but most residents and many exceeded. During droughts, suppliers might businesses use meters that capture indoor and increase rates or assess a surcharge for outdoor water use together (“mixed-use” meters). excessive water use. Suppliers Rely Primarily on Rate-Paying • Offering Rebate and Incentive Programs. Customers to Support Operations. Ratepaying Many water suppliers offer rebates for customers provide the primary source of revenue participating in conservation programs. that urban water suppliers use to support their For example, to reduce indoor water use operations. The California Constitution and they might offer rebates for replacing older state statute govern how public water suppliers model toilets, showerheads, or other fixtures set rates, while the California Public Utilities and appliances with more efficient models. Commission governs rates set by investor-owned To reduce outdoor water use, they might utilities. In both cases, the state places limits offer rebates for converting lawns to more on how much suppliers can charge customers. water-efficient landscapes. To access rebates, For example, in the case of public water suppliers, customers typically pay for the cost of the voter-approved Proposition 218 (1996) amended project themselves and apply for some the State Constitution such that rates cannot be amount of reimbursement after the project higher than the cost of providing service and must is completed. Rebates typically do not cover be in proportion to the amount of service provided installation costs. In some more limited cases, to an individual customer. Although suppliers a supplier might provide a “direct installation” might use rate structures to manage demand (as program where it pays the up-front costs discussed below), they can do so only within these (instead of reimbursing the customer later) and limitations. Some suppliers have other sources of manages and pays for installation. Rebates revenue. For example, suppliers with land holdings are typically limited in amount (for example, might lease property to other businesses, such as lawn conversion rebates usually do not cover ranching operations or cell phone companies for the full project cost) and could be limited in placement of cell towers. When suppliers need to number (such as if the supplier has a set total make a capital improvement, such as repairing an amount they can spend on rebates each year). aqueduct or increasing storage, they might increase • Conducting Outreach and Education to rates and/or use debt financing. Encourage Efficiency. Many suppliers (and Suppliers Use a Variety of Approaches to the state) run campaigns, such as through Manage Demand. Urban water suppliers employ television and radio ads, mailers, and social various strategies to meet and manage customers’ media posts, to encourage conservation and water use needs, including strategies to reduce efficient use of water. They also might hold demand, especially during times of drought. community events or conduct educational These include: workshops, for example, to teach people how to convert lawns to drought-resilient • Using Different Rate Structures or Raising landscapes or access rebates. Rates. While some suppliers might charge a flat rate (a single charge that does not • Implementing Restrictions. Particularly vary based on the amount of water used), during droughts, water suppliers might seek others use their rate structures to help to limit their customers’ water use through any manage demand. A simple example is a number of different strategies, which could be www.lao.ca.gov 7 AN LAO REPORT stricter than state requirements. For example, (which historically has been available as additional they might limit the times of day or number of water supply in dry summer and fall months). days per week that residents can water their Additionally, the state’s regulation of groundwater, lawns or require that leaks be fixed within authorized by the 2014 passage of the Sustainable a certain time frame. Some suppliers might Groundwater Management Act (SGMA), will limit issue fines if a customer uses too much water. the amount of groundwater pumping allowed and • Increasing Supplies. Suppliers might require that more water be used for groundwater consider ways to increase supplies through recharge. This combination of factors requires that banking groundwater, expanding surface Californians maximize efficient use and effective storage, building desalination facilities, management of available water resources. or importing additional water. (Due to State’s Multifaceted Water and Drought the significant associated cost Resilience Policies Emphasize Urban Water and/or geographical or practical limitations, Conservation. To deal with the factors noted expanding surface storage and increasing above, the state’s intended approach for decreasing ocean desalination are options only for water demand and boosting supply includes certain suppliers.) increasing water recycling, desalination, stormwater • Increasing Water Recycling. Another key capture, and conservation, as well as expanding method for managing demand is through above- and below-ground storage. In August 2022, water recycling to increase the amount of the Newsom administration released California’s available potable or non-potable reuse water. Water Supply Strategy; Adapting to a Hotter, Drier (Recycled non-potable water can be used for Future, which includes estimates—as shown in irrigation and other non-drinking uses.) Figure 3—for the amount of additional water that could be conserved, recycled, produced, captured, and stored by 2030 (about 5 million acre-feet) and URBAN WATER CONSERVATION 2040 (about 7 million acre-feet). IS ONE COMPONENT OF THE STATE’S WATER Figure 3 MANAGEMENT STRATEGY Climate Change and Groundwater Administration’s Plan for Increased Water Supplies Management Requirements Have Acre-Feet (In Millions) Increased Need to Manage Water Resources Effectively. Exacerbated by climate change, droughts are 7 expected to become more frequent, prolonged, and severe in California. 6 The state spent about 9 of the previous 11 years in drought (2012-2016 and 5 2019-2022). During the most recent 4 drought, California experienced the Expanded surface and groundwater storagea driest three winter months on record 3 Conservation (January through March 2022). In 2022, the Department of Water 2 Stormwater capture Resources (DWR) received reports of Desalination production approximately 1,400 household wells 1 Recycled water having gone dry, up from about 970 in 0 2021 and from an average of about 2030 2040 80 in each of the previous four years. Rising temperatures due to climate a Expanded storage capacity does not necessarily lead to that amount of additional water supply materializing. change also mean that less of the state’s water will be stored in snowpack 8 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT State Has Implemented Numerous Policy In addition, the Legislature enacted laws to limit Changes to Increase Water Conservation. the amount of water lost through system leaks, As shown in Figure 4, over the past 15 or so years, establish the long-term efficiency framework that the state has implemented a number of policies to is the subject of this report, and ban using potable support and increase water conservation through water for nonfunctional turf on CII landscapes. executive action, legislation, and regulations. Among (Nonfunctional turf is grass that is not used for the more significant changes in the urban water specific functions such as recreation.) While SGMA context was the Water Conservation Act of 2009, did not identify urban water conservation as one of which mandated a 20 percent reduction in per its primary goals, it still will have significant impacts capita urban water use by 2020 (“20x2020”). in some nonagricultural regions. Specifically, urban (The state achieved this goal by 2014.) water suppliers that rely on groundwater will be affected if their groundwater pumping is reduced in the coming years. Figure 4 Select State Policies That Seek to Increase Water Conservation 2009 Chapter 4 (SB X7-7, Steinberg) Known as the Water Conservation Act of 2009, required development of urban water use targets to achieve a 20 percent reduction in water use per capita by 2020 (“20x2020”). 2014-2015 Proclamations (1/17/14 and 4/25/14) Proclaimed a drought state of emergency. Authorized various Executive Orders B-26-2014, B-28-2014, emergency activities, including mandating a 25 percent reduction B-29-2015, and B-36-2015 in potable urban water use through February 2016, relative to 2013 levels. SWRCB issued emergency regulations in May 2015 to effectuate this rule. 2014 California Water Action Plan Five-year plan laying out ten priority actions to increase the reliability and resilience of the state’s water supply and restore important species and habitat. Called for increasing efficiency beyond what SB X7-7 envisioned. The plan was updated in 2016 and a final implementation report was released by CNRA in 2019. 2014 Sustainable Groundwater Management Act: Requires monitoring and operating groundwater basins to avoid Chapter 346 (SB 1168, Pavley) overdraft with the goal of achieving long-term groundwater resource Chapter 347 (AB 1739, Dickinson) sustainability beginning in 2040. Chapter 348 (SB 1319, Pavley) 2015 Chapter 679 (SB 555, Wolk) Requires urban retail water suppliers to submit water loss audit reports and limit water losses by meeting volumetric standards. SWRCB approved regulations in November 2022 that require suppliers to meet the standards starting in 2028, with subsequent assessments every three years. 2016 Executive Order B-37-16 (May 16) Established goal of “Making Conservation a California Way of Life.” Directed the administration to develop water use targets as part of a permanent long-term conservation framework. 2018 Chapter 14 (SB 606, Hertzberg) Codified conservation framework and established urban water use Chapter 15 (AB 1668, Friedman) objectives and reporting requirements. 2019 Chapter 239 (AB 1414, Friedman) Amended the timing for suppliers’ annual water use efficiency reporting and required suppliers to describe their demand management strategies in their 2024 reports. 2021-2023 Proclamations (4/21/21, 5/10/21, 7/8/21, and Proclaimed a drought state of emergency, ultimately expanding across 10/19/21) the entire state. Among several emergency activities, instituted Executive Orders (N-10-21, N-7-22, N-3-23, conservation requirements for water suppliers under their drought N-4-23, and N-5-23) contingency plans. Called on residents to voluntarily reduce water use by 15 percent (relative to 2020 levels) in summer 2021. 2022 Chapter 679 (SB 1157, Hertzberg) Made amendments to AB 1668, including tightening indoor residential water use standards used in water use objectives. 2023 Chapter 849 (AB 1572, Friedman) Prohibits use of potable water to irrigate nonfunctional turf on CII landscapes, phasing in the prohibition from 2027 to 2031. SWRCB = State Water Resources Control Board; CNRA = California Natural Resources Agency; and CII = commercial, industrial, and institutional. www.lao.ca.gov 9 AN LAO REPORT State Also Has Approved Funding for a State and Local Actions Have Led to Water Variety of Conservation Activities. Along with Use Reductions. As shown in Figure 6, between policy changes to increase water use efficiency 1990 and 2020, daily per capita water use in and conservation, the Legislature, Governor, and California declined by 37 percent, from 217 gallons voters have approved approximately $1 billion in to 136 gallons. (In this context, water use measured state funding over the past decade to support in “gallons per capita daily” includes most urban these goals, as shown in Figure 5. This includes water use. Later we discuss a new standard which about $100 million from Proposition 1 (2014 water uses the same terminology but which is calculated bond) for various water conservation projects based only on indoor residential water use.) and activities. The state also provided significant Much of this reduction occurred after the 20x2020 General Fund resources, including $275 million for requirement was established (a goal the state has urban drought and water conservation programs, far exceeded). Because of the decline in per capita $75 million for turf replacement, $75 million for water use, the total amount of urban water used the state’s Save Our Water campaign, and nearly statewide has plateaued despite an increase in the $450 million in grant funding for water recycling state’s population. The state uses roughly the same projects. Additionally, the state has provided total amount of urban water now as it did in 1990. General Fund to support DWR and SWRCB in implementing the water conservation framework enacted by SB 606 and AB 1668. Figure 5 Select State Funding for Water Conservation Activities General Fund, Unless Otherwise Noted Year Activity 2015 • $98 million one time for urban and agricultural water conservation grants, technical assistance, data collection, and program administration.a 2019 • $15.7 million spread across 2019-20 through 2022-23 and $2.2 million ongoing beginning in 2023-24 for DWR and SWRCB to implement Chapters 14 (AB 1668, Friedman) and 15 (SB 606, Hertzberg) of 2018, including for rulemaking, studies, and data collection. 2021 • $225 million one time for SWRCB to provide grants for water recycling projects. • $200 million one time for DWR’s Urban Community Drought Relief Program. • $75 million one time for DWR to provide grants supporting urban conservation activities. • $75 million one time for DWR to provide grants for replacement of nonfunctional turf with drought tolerant landscapes. • $10 million one time for DWR to provide conservation technical assistance.b 2022 • $190 million one time for SWRCB to provide grants for water recycling projects. • $75 million one time for DWR to carry out the state’s Save Our Water public awareness and outreach campaign. • $5 million ongoing to support 13 positions and activities associated with the California Irrigation Management Information System and water use efficiency program requirements. 2023 • $32 million one time for SWRCB to provide grants for water recycling projects. • $7 million spread over four years for DWR to conduct activities required by Chapter 649 of 2022 (SB 1157, Hertzberg), including studies on the impact of reduced indoor residential water use. a Funding from Proposition 1 (2014). b Of total, $7 million from Proposition 1. DWR = Department of Water Resources and SWRCB = State Water Resources Control Board. 10 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Figure 6 Daily Per Capita Urban Water Use Has Steadily Declined Over Past Three Decades 240 220 200 180 160 140 Gallons Per Capita Daily 120 100 1992 1996 2000 2004 2008 2012 2016 2020 2018 LAWS CREATED NEW Overview of Legislation URBAN WATER USE EFFICIENCY Requires Suppliers to Increase Water Use Efficiency. Senate Bill 606 and AB 1668 require FRAMEWORK urban retail water suppliers to develop a water use Senate Bill 606 and AB 1668—the subjects objective (WUO) based on the local characteristics of this report—created the statutory framework of their service areas. (We discuss in more detail for “Making Conservation a California Way of below how the WUO is calculated and various other Life.” The Governor initiated this effort in 2016 via aspects of the legislation’s requirements.) The WUO an executive order, which required DWR and represents the total amount of water a supplier SWRCB to develop water use targets as part of would have delivered to customers in the previous a permanent water use efficiency framework. year if water had been used efficiently (based on DWR and SWRCB—along with several other the four efficiency inputs described below). It is akin departments—issued a report in 2017 about to a water budget. The supplier’s reported actual implementing the framework, which then led to water use for the previous year will be assessed its codification in 2018. SWRCB will adopt final against its WUO and ultimately SWRCB can issue regulations next year to implement the framework’s penalties against suppliers that do not achieve their requirements. Two subsequent bills were approved objectives. The legislation also requires suppliers that either amended certain aspects of the original to implement performance measures for water laws or added to them. These are Chapters 239 of use on CII landscapes. Finally, it requires each 2019 (AB 1414, Friedman) and 679 of 2022 supplier subject to the requirements to report a (SB 1157, Hertzberg). variety of information to DWR annually, including The section below provides an overview of the its WUO for the previous year, its actual water use, legislation (including updates made by AB 1414 progress made toward achieving the WUO, and and SB 1157) as well as details about the new implementation of CII performance measures. requirements that urban retail water suppliers will Figure 7 on the next page, describes the major face over the coming years. components of the legislation. www.lao.ca.gov 11 AN LAO REPORT Figure 7 Major Components of 2018 Water Use Efficiency Legislation Develop and Achieve On an annual basis beginning in 2024, suppliers must (1) calculate their WUOs for the previous year, Water Use Objectives (2) report actual water use for the previous year, and (3) achieve their WUOs (with penalties for (WUOs) noncompliance beginning in 2027). The WUO is based on four efficiency inputs: • Indoor residential water use standards. • Outdoor residential water use standards. • Outdoor irrigation standards for CII landscapes with dedicated irrigation meters. • Water lost through leaks. Implement CII Phased in over the 2025 through 2030 period, suppliers must begin to: Performance Measures • Classify their CII customers by business type. • Identify top water users within each of those business categories. • Implement best management practices to help those top water users reduce their water use. • Ensure that CII customers with large landscapes convert to using dedicated irrigation meters (or an accepted alternative). Report Annually Suppliers must report their WUOs and actual water use annually. Annual reporting must also include descriptions of progress made toward implementing CII performance measures. CII = commercial, industrial, and institutional. Applies to Urban Retail Water Suppliers. For example, DWR was about seven months The legislation concerns the state’s approximately behind in making recommendations for indoor 405 urban retail water suppliers (those with at residential water use standards and about a least 3,000 connections or that provide at least year behind in making recommendations for 3,000 acre-feet of water annually). This includes other inputs to the WUO calculation. It also about 15 wholesale providers that are also was delayed by about a year in providing data retail suppliers. These suppliers serve about to suppliers about residential landscape area 95 percent of the state’s population. measurements. Given that SWRCB’s process Phases in Requirements and Standards relied on DWR recommendations, the board’s Over Multiple Years… The legislation created a development of regulations—which will lay out the multiyear phase-in period, as shown in Figure 8. specific requirements that suppliers must follow— In the initial years it required DWR, in collaboration consequently was delayed as well. The legislation with SWRCB, to conduct the necessary studies called for adoption of final regulations by to make recommendations for developing the June 30, 2022, yet SWRCB expects this will not standards (such as for outdoor residential water occur until summer of 2024, with regulations use) and other inputs that comprise the WUO taking effect October 1, 2024. (The board released calculation. DWR also was required to collect proposed regulations in August 2023 and has one and provide data to suppliers about residential year to adopt them.) Despite these delays, none of landscape area measurements so they would know the other implementation milestones or deadlines how much land in their service area is “irrigable.” for suppliers have been changed. This created a The first statutory reporting deadline for suppliers unique circumstance for suppliers—they faced a was January 1, 2024. By that date, they had to statutory reporting deadline of January 1, 2024, report their WUO for the prior year along with actual but did not have final requirements to follow in water use. compiling these reports. Because of this, DWR developed an interim reporting template that …Although Delayed Regulations Are suppliers could use in 2024 to meet the reporting Resulting in Interim Reporting for 2024. requirement. Following adoption of final regulations, The departments were unable to meet several the process will be more refined. of the initial statutory deadlines noted in Figure 8, in part due to the COVID-19 pandemic. 12 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT request that it address particular Figure 8 areas of concern in its next report), and conservation orders beginning Key Statutory Milestones for Implementing in January 2026 (to require that the Water Use Efficiency Framework supplier undertake certain actions to improve efficiency). Ultimately, 2021 By January 1a SWRCB may issue monetary DWR to make recommendations on indoor residential standards. penalties ($1,000 per day under DWR to provide urban retail water suppliers with residential landscape regular conditions or $10,000 per area measurements. By October 1 a day during specified drought DWR to make recommendations for: (1) outdoor residential standards, (2) outdoor years) for violations that occur after standards for CII landscapes with dedicated irrigation meters, (3) variances for unique water uses, (4) how to calculate WUOs, and (5) CII performance measures. November 1, 2027. Creates Responsibilities 2022 By June 30b SWRCB to adopt regulations. for Both DWR and SWRCB. As noted, the legislation required 2024 By January 1 and annually thereafter DWR and SWRCB to conduct Suppliers to report WUOs and data on actual water use for the previous year. specific activities to implement the By January 10 Legislative Analyst to submit report assessing implementation of standards water use efficiency framework. and water use reporting. Recent budgets have provided each with funding for staffing and 2025 January 1 (until January 1, 2030) Indoor residential standard to be set at 47 gallons per capita daily. external contracts to support these activities. Of note is the 2026 On or around January 1 standardized regulatory impact DWR and SWRCB to report in legislative committees on implementation of standards and water use reporting. assessment that SWRCB completed. This assessment— 2027 November 1 and thereafter Suppliers could be fined by SWRCB for violations, including not essentially a benefit-cost analysis— achieving their WUOs or not complying with reporting requirements. is required when the economic impact of a proposed regulation 2028 By January 1 DWR to submit report to the Legislature assessing suppliers' on California businesses and progress toward achieving their WUOs. individuals is likely to exceed By October 1 $50 million in any 12-month period DWR to submit report to the Legislature assessing economic impacts of 2030 indoor residential standard on water, wastewater, and recycled following adoption of regulations. water systems. In addition to the activities required 2030 January 1 and thereafter by statute, DWR and SWRCB also Indoor residential standard to be set at 42 gallons per capita daily. have conducted other activities to facilitate implementation. a DWR provided recommendations and data between six months to one year after the statutory deadline. b SWRCB plans to adopt regulations about two years after the statutory deadline. For example, SWRCB has DWR = Department of Water Resources; WUO = water use objective; CII = commercial, industrial, developed a Water Use Objective and institutional; and SWRCB = State Water Resources Control Board. Exploration Tool, which helps to estimate WUOs statewide and for Authorizes Civil Penalties to Be Assessed individual suppliers. Both DWR Beginning in 2027. As the regulatory agency, and SWRCB have created various other online SWRCB is responsible for enforcing the new resources, such as fact sheets and training videos. requirements. The enforcement process ramps up In addition, DWR is in the process of collecting over several years. SWRCB may issue informational CII landscape area measurement data and will offer orders beginning in January 2024 (to gather more technical assistance to suppliers on a pilot basis on information about why a supplier is not meeting its how to use that information. WUO), written notices beginning in January 2025 (to warn the supplier it is not meeting its WUO and www.lao.ca.gov 13 AN LAO REPORT Includes Legislative Controls and exception (real water loss standards, as discussed Oversight of Framework and Implementation. below), suppliers do not need to achieve each of The legislation included some specific ways for these individual standards; rather, they only must the Legislature to shape and conduct oversight of achieve the aggregate WUO. Achieving the WUO the water use efficiency framework. As shown in would mean the supplier did not use more water Figure 9, it stipulated certain components of the than “budgeted” by the WUO amount. In addition, framework in statute, including setting standards for individual customers are not required to meet any indoor residential water use, maintaining previously of the individual standards; the requirements for approved standards for water losses, and requiring the WUO only pertain at the supplier level (although new legislation for any revisions to standards initially suppliers will rely on customers making behavioral set by the administration. The legislation also changes to reduce water use). Figure 10 displays includes reporting by the administration at several how the total WUO is calculated, based on statutory points, including progress updates and a report on requirements and SWRCB’s proposed regulations. the economic impacts of indoor residential water • Indoor Residential Use. This standard is an use standards. If the administration believes the amount of water that would be used indoors 2030 indoor residential standard should be delayed if water was being used efficiently and is based on its findings, statute notes that it can measured in gallons per capita daily (GPCD). recommend that the Legislature set an alternative These standards were set by SB 1157, based date for implementation. on recommendations from DWR. How the Urban • Outdoor Residential Landscapes. This standard is based on four inputs, Water Use Objective Is Defined as shown in Figure 10, to factor in local The WUO Is Analogous to a Water Budget for conditions. This includes a “landscape Efficient Use. The WUO is a volumetric measure efficiency factor,” which is a fractional number of water, in gallons, that a supplier’s customers reflecting water use efficiency, with smaller would have required in the previous year if water numbers indicating less water used. This was being used efficiently. The WUO can be factor will be set in regulations. The second thought of as an annual water budget. This total input (“net reference evapotranspiration”) is amount of water is the sum of the four individual a measure of local precipitation, the water standards described below. However, with one Figure 9 Legislative Oversight Included in Water Use Efficiency Laws 9 Specifies indoor residential standards. 9 Maintains previous statutory requirements for water loss standards. 9 Provides one-time-only authority to DWR and SWRCB for setting other standards. 9 Requires report by Legislative Analyst by January 10, 2024 assessing implementation. 9 Requests that DWR and SWRCB appear before the Legislature around January 1, 2026 to report on implementation. 9 Requires DWR and SWRCB to submit a report by January 1, 2028 assessing suppliers’ progress toward achieving their WUOs. 9 Requires DWR and SWRCB to submit a report by October 1, 2028 assessing economic impact of indoor residential water use standard on other systems. DWR = Department of Water Resources; SWRCB = State Water Resources Control Board; and WUOs = water use objectives. 14 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT needs of plants, and estimated evaporation. • CII Landscapes With Dedicated Irrigation The third input is a measure of irrigable Meters. This standard applies to CII residential land area, in square footage. customers’ outdoor landscapes, but only The final input is a factor used to convert those that use a dedicated irrigation meter. the amount of water into gallons. Legislation (These meters measure only the amount requires this standard to incorporate the of water used outdoors as compared to a principles of existing rules concerning newly mixed-use meter which measures indoor constructed residential landscapes. and outdoor use together.) While the CII standard uses the same formula as the Figure 10 How the Water Use Objective is Calculated Based on Regulations Proposed in August 2023 Indoor Residential Outdoor Residential CII Landscapes Real Water Water Use Standard Standard With DIM Losses Objective In gallons per capita daily (GPCD): Uses the same formula as the Based on Amount of water, in • 55 GPCD until Jan. 1, 2025 Outdoor Residential Standard requirements in gallons, for the previous • 47 GPCD from Jan. 1, 2025 until (see below), but with the Chapter 679 of year, if water had been Jan. 1, 2030 following landscape efficiency 2015 (SB 555, used efficiently factors: Wolk) • 42 GPCD beginning Jan. 1, 2030 • Actual water use through These numbers are multiplied by June 30, 2028 service area population and number of days in a year (365) • 0.80 from July 1, 2028 through June 30, 2030 • 0.63 from July 1, 2030 through June 30, 2035 • 0.45 beginning July 1, 2035 (and beginning in 2024 for new construction) 0.62 Landscape Efficiency Net ETo Landscape Conversion Outdoor Residential Factor Area Factor Standard • 0.80 until June 30, 2030 Estimated Square footage of Factor that Amount of • 0.63 from July 1, 2030 evapotranspiration landscapes that converts amount water, in gallons through June 30, 2035 (water that plants are irrigated of water to gallons use and that • 0.55 beginning July 1, 2035 evaporates) minus (and beginning in 2024 for local precipitation new construction) Smaller numbers mean less water is used CII = commercial, industrial, and institutional; DIM = dedicated irrigation meters; and net ETo = net reference evapotranspiration. www.lao.ca.gov 15 AN LAO REPORT outdoor residential calculation, the specific Suppliers With Lower-Income Residents May metrics and time line differ. These standards Qualify for Five-Year Extension on Outdoor also will be set in regulations. Legislation Standards. Under the proposed regulations, requires this standard to incorporate the suppliers whose service area has an average principles of existing rules concerning newly household income at or below 80 percent of the constructed landscapes. state’s median household income may be able to • Real Water Losses. This standard is an wait until 2040 (rather than 2035) to implement amount of water a supplier is allowed to lose the lowest outdoor residential and CII landscape through leakages in its system. Over time, standards. This extension also could apply to the amount of lost water that is allowed and suppliers that would otherwise be facing water can be included in the WUO will decrease. reductions of 20 percent or more to comply with the Unlike the three previous inputs, suppliers 2035 requirements. Suppliers granted extensions must achieve the specified targets for still would have to demonstrate continued progress real water losses, which are governed by toward achieving their annual WUOs. previously approved statute (Chapter 679 CII Performance Measures of 2015 [SB 555, Wolk]) and corresponding Create a Benchmarking System regulations. In other words, they must not have water losses that are more than the The legislation not only requires water suppliers amount in this standard, regardless of whether to include the amount of water used on CII outdoor they can achieve their overall WUO through landscapes as part of their annual WUOs, but the other standards. also to implement performance measures for this use of water. The legislation requires SWRCB to The WUO Can Be Increased to Account for adopt regulations for CII performance measures Certain Local Factors. The above four standards that (1) define a CII water use classification system, are the primary inputs that comprise the annual (2) identify best management practices for certain WUO (or water budget) for a supplier. However, CII customers, and (3) set size thresholds above additional factors could increase a supplier’s which a CII customer would have to convert from WUO, including: a mixed-use irrigation meter to using a dedicated • Bonus Incentive for Potable Water Reuse. irrigation meter. Below, we describe how SWRCB If a supplier augments its groundwater, has proposed to carry out these three legislative reservoirs, or other sources of water supply requirements, along with three additional with potable reuse water (that is, recycled requirements the board is proposing related to water that is of drinking water quality), the CII customers that were not required by statute. proposed regulations would allow it to Classify CII Water Users. Proposed regulations increase its WUO—by up to 15 percent of the would require suppliers to classify their CII WUO if the potable reuse water is produced at customers according to the federal Energy an existing facility or by up to 10 percent if it is Star Portfolio Manager categories. (Currently, produced at a new facility. these consist of 18 categories, such as banking/ • Variances. Proposed regulations would financial services, health care, public services, allow a supplier to apply for a variance to retail, and technology/science.) In addition, increase its WUO if water for a specified proposed regulations would require suppliers unique use accounts for 5 percent or more of to identify businesses that are associated with: the supplier’s WUO, such as for evaporative (1) CII laundries, (2) large landscapes, (3) water coolers, significant seasonal population recreation, and (4) car washes. Suppliers would changes, or significant populations of horses have to classify at least 20 percent of CII customers or other livestock. On an annual basis, by 2026, at least 60 percent by 2028, and suppliers would have to apply for variances 100 percent by 2030. After that, they would have to and receive approval from SWRCB to include maintain classification of at least 95 percent of CII the extra amount of water in their WUOs. customers on an annual basis. 16 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Implement Best Management Practices for Thereafter, each year they would have to ensure Top CII Water Users. For top water users within that at least 95 percent of large landscapes each of the classification categories described have a dedicated irrigation meter or an approved above, proposed regulations would require alternative. Water use associated with these suppliers to design and implement a conservation landscapes would then be included in the program for each customer that includes best annual WUO. management practices (such as bill inserts, rebates, Ban Using Potable Water to Irrigate irrigation system maintenance, collaboration with Nonfunctional Turf on CII Landscapes. Proposed tree-planting organizations, or changes to billing regulations would ban irrigation of nonfunctional systems) from five different categories. turf with potable water beginning on July 1, 2025. • For CII customers in the 80th percentile of SWRCB’s regulations were proposed before water use, the program would need to include approval of Chapter 849 of 2023 (AB 1572, at least one best management practice from Friedman), which has a similar prohibition that is each of five categories. phased in beginning in 2027. • For CII customers in the 97.5th percentile of Identify All “Disclosable” Buildings and water use, the program would need to include Report Information About These Buildings. at least two best management practices from Proposed regulations would require suppliers each of the five categories. to identify certain large CII buildings that are considered disclosable according to the California Suppliers would have to achieve 20 percent Code of Regulations. (A disclosable building has compliance by 2026, at least 60 percent more than 50,000 square feet of area and has compliance by 2028, and 100 percent by 2030. either no residential utility accounts or at least After that, they would have to maintain at least 17 residential utility accounts for each type of 95 percent compliance on an annual basis. energy—electricity, natural gas, steam, fuel oil— Ensure Certain CII Customers Convert serving the building.) For each disclosable building, to Dedicated Irrigation Meters or Accepted suppliers would then have to provide to the building Alternative. Proposed regulations would owner its water use data for the previous year. require suppliers to identify CII customers with Suppliers would have to provide data for at least large landscapes (defined as those that use 20 percent of disclosable buildings by 2026, at 500,000 gallons of water or more annually) that use least 60 percent by 2028, and 100 percent by 2030. mixed-use meters and convert those to dedicated This proposed requirement was not included in the irrigation meters or accepted alternatives. (These water use efficiency legislation. alternatives are a combination of practices from Report on Estimated Water Savings a menu of choices. For example, it could include Achieved as a Result of Various Practices. using a water budget-based rate structure and For several of the above requirements, proposed smart irrigation controllers, along with irrigation regulations would require suppliers to report to the scheduling.) Suppliers would have to ensure administration annually on the estimated amount of that at least 20 percent of large landscapes water saved. For example, suppliers would have to in their service areas are converted by 2026, estimate water savings from having implemented 60 percent by 2028, and 100 percent by 2030. best management practices with top water users. www.lao.ca.gov 17 AN LAO REPORT ASSESSMENT In this section we discuss our assessment of implementation of Figure 11 the water use efficiency framework Assessment of Draft Framework to date, including some of the requirements in SWRCB’s proposed 9 Impacts to Individual Suppliers Will Vary Significantly regulations. We highlight some of the 9 challenges associated with the new Proposed Regulations Are Overly Complicated and in Places Lack requirements and, toward the end of Clarity this section, raise some questions 9 Achieving the Water Use Objective Likely to Be Challenging and Costly for the Legislature to consider about 9 the framework’s ultimate potential Framework Could Create Disproportionate Impacts on Lower-Income effects. Figure 11 summarizes our Californians primary findings. 9 Water Savings Due to Conservation Framework Likely to Be Modest Impacts to Individual 9 Unclear How Any Water Savings Would Be Used Suppliers Will Vary 9 Significantly Unclear if the Framework’s Benefits Will Outweigh the Costs Statewide Reductions Needed to Meet Overall Water Use Objectives. SWRCB has developed Figure 12 a model (the Water Use Objective Exploration Tool) that takes water use Estimated Water Use Reductions to Meet data from 2017 through 2021 and 2035 Objectivesª creates estimates of what individual Share of Suppliers suppliers’ water use should be based on the various proposed standards. Cumulatively, SWRCB’s data indicate that suppliers across the state will No Reduction Greater Than need to make reductions of about 30% Reduction 14 percent to meet 2035 WUOs. 18% 21% However, the actual reductions suppliers will need to make to achieve their individual WUOs will vary. As shown in Figure 12, the 20% Less Than 10% Reduction board estimates that some suppliers 20% 20-30% (18 percent) will not need to make Reduction any reductions to current water use 21% to achieve the 2035 objective, and a similar share will need to make reductions of less than 10 percent. 10-20% Reduction The board projects that the majority, however, will have to make reductions a Based on estimates by the State Water Resources Control Board. of at least 10 percent, and that about one in five providers will face reductions of 30 percent or more. 18 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Size of Required Reductions Differs by the early 2000s to 2020, going from 386 GPCD to Hydrologic Region. SWRCB’s data highlight 256 GPCD. Under the new requirements, suppliers some geographic trends in the water conservation there must reduce water use by another 27 percent actions needed to meet WUOs. Specifically, in on average by 2035. In comparison, suppliers in aggregate, the inland hydrologic regions face the South Lahotan region both cumulatively already much larger reductions than coastal regions, as reduced water use by an even higher percentage shown in Figure 13 on the next page. In particular, than the Colorado River region—39 percent suppliers in the North Lahotan, South Lahotan, between the early 2000s and 2020, from 256 to 156 Tulare Lake, and San Joaquin River regions will GPCD—and will have to reduce aggregate water need to make the largest cumulative reductions use by an even higher percentage (33 percent) to to meet their WUOs. However, notable variation achieve their 2035 WUOs. also exists within regions. For example, although Proposed Regulations Are Overly in the aggregate it appears that the 13 suppliers in the North Coast region do not face reductions, Complicated and in Places Lack Clarity two of the individual suppliers serving more Pathway to Efficiency Is Unnecessarily than 1.6 million customers will need to reduce Complex. The proposed regulations create water use by more than 25 percent to meet their undue complexity for water suppliers in several 2035 objectives. (This distinction is because water areas, without compelling justification. As one use for 7 of the 13 suppliers already falls below example, the CII performance measures and best their estimated 2035 WUOs, which masks the management practices are particularly prescriptive deficiencies for the remaining suppliers when all are and complicated, especially given the relatively considered together.) small potential for outdoor water savings from this Magnitude of a Supplier’s Reductions sector (which makes up less than 3 percent of Depends on Several Factors. Each supplier’s statewide water use). For instance, the rationale WUO for the previous year will be unique due to the for requiring suppliers to work with top water users distinctive values entered into the WUO calculation. within each of 22 different CII categories is unclear. The amount by which an individual supplier must Allowing them to focus on the top users overall, reduce water use also depends on its baseline regardless of category, would be simpler and less water use, which in turn is contingent on several prescriptive and likely could achieve as much or factors. For example, does the supplier already more water savings. Similarly, a supplier might wish have conservation programs in place? Does it have to focus on all CII water users within a particular water recycling facilities that produce potable reuse category. While still achieving water savings, they water so that it can access the bonus incentive? would have more flexibility in how they target and What are the characteristics of the supplier’s implement best management practices. climate and are its customers used to having lawns? Additionally, the data and information that Some Regions With Declining Water Use suppliers would have to collect to comply with the Still Face Additional Reductions. What does not proposed CII performance measures would be appear tightly correlated to upcoming requirements extensive. While some of these data could be useful is the magnitude of the previous water use (as would a better understanding of how much reductions (in terms of percentage or GPCD) that water is used on outdoor CII landscapes), whether were mandated by the Water Conservation Act the significant amount of work and cost associated of 2009. Specifically, while one might expect that with its collection would be worth the small amount regions that have already made significant water of water savings it might yield is questionable. use reductions over the past several years would Similarly, we have been unable to identify a strong be closer to their efficient use targets and therefore justification for why SWRCB chose to include face less steep additional reductions under the new new reporting requirements related to disclosable standards, that does not necessarily seem to be buildings, given this was not a statutorily the case. For example, water use in the Colorado required activity. River hydrologic region declined by 34 percent from www.lao.ca.gov 19 AN LAO REPORT Figure 13 Inland Areas Face Largest Water Reductions to Meet Standards by 2035 Average Reductions to Meet 2035 Standards Within Hydrologic Regionsª North Coast 0% North Lahontan 34% Sacramento River 19% San Joaquin River San Francisco Bay 28% 3% Tulare Lake Central Coast 31% South Lahontan 1% 33% South Coast Colorado River 11% 27% ª Based on data from the State Water Resources Control Board. 20 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT SWRCB’s proposed approach to addressing • How Will the Proposed Regulation Work variances (which allow a supplier to increase With a New Law Limiting Nonfunctional the amount of water in its WUO for unique uses Turf on CII Landscapes? Since SWRCB of water) also is unnecessarily complicated. proposed the water use efficiency regulations, The proposed regulations would require a high the Legislature enacted separate legislation— threshold (5 percent of the total WUO) for requesting AB 1572—to prohibit the use of potable a variance, which could exclude some suppliers water for irrigation of nonfunctional turf on that might merit this accommodation. Moreover, the CII landscapes. This statutory ban will begin proposed approach would create a cumbersome in 2027 for public properties, 2028 for other data submission, application, and approval process, CII properties, and 2029-2031 for remaining likely resulting in substantial work for both suppliers properties. SWRCB’s proposed ban, which is and SWRCB—and would require conducting these similar in nature, would begin in 2025, raising activities every year. For some of the variances, questions around which deadlines suppliers the process could be prohibitively burdensome will need to follow. for suppliers and dissuade them from applying for Proposed Reporting Periods Could Create the adjustment even when it might be appropriate Accounting Challenge. Some water suppliers and help them meet their WUOs. Why SWRCB is operate on a calendar-year basis (January to proposing such an extensive process when the December), while others operate on a fiscal-year same policy goals likely could be achieved in a basis (July to June). Although statute technically simpler fashion is not clear. allows suppliers to use either time frame for the Certain Implementation Details Remain new required water use efficiency reporting, Unclear in Statute and Proposed Regulations. the proposed regulations would require them to Certain details about how the state and local report using only the fiscal year time line. SWRCB suppliers would implement the proposed indicates it made this decision to align with changes regulations have not yet been clarified. Below are enacted through AB 1414 in 2019. (Assembly two examples. Bill 1414 changed the water use efficiency reporting • Who Will Collect Residential Landscape deadline from November 1 each year to January 1 Data Going Forward? The total square each year, meaning it would be impractical for footage of irrigable land included in the suppliers to submit a report for the previous outdoor residential standard has a significant calendar year ending December 31 on the next impact on a supplier’s total WUO. Yet day, January 1.) Suppliers that operate on a measuring these landscapes and determining calendar-year basis have noted that this proposed how much is currently irrigated is a challenging approach could create an accounting challenge and and labor-intensive undertaking. DWR would be inconsistent with other state reporting worked with a contractor to conduct these requirements—such as Urban Water Management measurements for outdoor residential Plans, water loss reporting, and electronic annual landscapes in 2018 using aerial imagery and reports—for which water suppliers have discretion other techniques (at a cost of about $7 million, about which time frame to use. covered by the state’s General Fund). This was Achieving the Water Use Objective a point-in-time assessment. Given the Likely to Be Challenging and Costly importance of this information to the total WUO calculation, the question remains of how often Some Suppliers Lack the Staffing or these data should be updated and by whom. Expertise Needed to Comply With New Rules. Some providers—particularly the smaller Based on numerous interviews we conducted ones—might not have the capacity to collect for this report—including with the Governor’s this information and conduct the analyses for administration, an association representing water their service areas, yet whether the state can suppliers, researchers, consultants, and some and will prioritize funding for DWR to continue individual suppliers—we learned that a sizeable to do it on a statewide basis also is uncertain. share of suppliers lack awareness about what is www.lao.ca.gov 21 AN LAO REPORT required of them under the proposed regulations evapotranspiration and landscape area. However, and may be challenged to fulfill the requirements. the legislation did not stipulate that the outdoor While some suppliers have staff dedicated to residential standard for existing landscapes water conservation programs, others—particularly specifically use the same efficiency factor (0.55) those that are smaller—have fewer staff and no required by the 2015 statute for newly constructed one to focus primarily on these efforts. Even larger landscapes. Moreover, in its report to SWRCB, suppliers indicated they likely will need more staff DWR recommended setting the standard at a less and/or outside consulting contracts to comply with stringent level (0.63) than the design standard. Yet, the requirements. Moreover, existing staff may lack SWRCB proposes using the design requirements the capacity or expertise to collect and analyze as the standard for the new WUO. Given the relevant data to develop the WUO and implement challenges in achieving that standard in practice on the CII performance measures. For example, newly designed landscapes, achieving it on existing staff will need to be deployed to locate dedicated landscapes likely will be even more challenging for irrigation meters and delineate which areas are residents (and, in aggregate, for suppliers). irrigated. If they are not using DWR-provided data, Theoretically, Flexibility Is Built Into the they will need to measure outdoor landscapes; if Framework… Certain components of the water they are using the information DWR provided, they efficiency framework are designed to offer need to be able to analyze the data. These activities suppliers flexibility around how they meet the new require sufficient time and expertise that some requirements. Specifically, as described earlier, suppliers do not have. suppliers must achieve the WUO in the aggregate; Standards Could Be Difficult to Achieve. except for the water loss standard, they need The WUO is built on numerous individual inputs, not achieve each of the individual standards. which get increasingly stringent over time. For example, a particular supplier’s residential These standards could be hard to achieve, customers might use more water outdoors than especially in later years. This might create the established standard, but less water indoors. unrealistic expectations for the state about the In such a case, the supplier still could achieve amount of water savings that are possible. This is its WUO since the lower indoor use would offset particularly true for the proposed 2035 outdoor the greater outdoor use. In addition, they have residential water use standard for existing some flexibility about which data to use in the landscapes. The 2035 standard proposed by WUO calculations. For example, they can use SWRCB for existing outdoor residential landscapes the data provided by DWR for outdoor residential uses the current standard for the design of newly landscapes, or they can conduct their own surveys constructed landscapes (per legislation approved in and use that data (provided it is of sufficient quality). 2015). Under that 2015 design standard, however, Suppliers also have choices about how to make the the newly constructed landscapes do not ultimately water use reductions necessary to achieve their have to perform to that level. Indeed, suppliers have WUOs. For example, statute does not prescribe noted that the performance of these landscapes specific conservation programs or activities. often falls short of their design, meaning they end …However, Tightened Individual Standards up using more water than intended. This can be in SWRCB’s Proposed Regulations Could due to a variety of factors. For example, if a resident Reduce Local Options. While AB 1668 expressed does not maintain the landscape properly or waters legislative intent for suppliers to retain flexibility in at the wrong time, or if a subsequent resident at the how they design and implement water conservation same property adds new plants or trees, this can strategies, SWRCB’s proposed regulations likely increase water use over time. reduce flexibility in actual practice. One key The 2018 water use efficiency legislation called challenge is that SWRCB is proposing to set for the outdoor residential standard to incorporate individual standards at more stringent levels than principles of the existing design rules, meaning DWR recommended in the report it submitted to it should take into account factors such as the board to inform development of the regulations. 22 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Specifically, as displayed in Figure 14, the approach, the lack of cushion around the data proposed regulations would require water suppliers (where inaccuracies could have an impact on the to comply with even more rigorous thresholds WUO calculation) further reduces supplier flexibility for outdoor residential use (as noted above), in achieving the WUO. CII landscapes, and CII performance measures. An additional impediment to suppliers’ These more stringent requirements will remove flexibility stems from legislation, not the proposed much of the “wiggle room” that suppliers might regulations. Specifically, the statutory requirement have been able to take advantage of under DWR’s for a standalone water loss standard established by less severe recommended standards. That is, in SB 555 in 2015 prohibits a supplier from potentially practice, suppliers might have to achieve each exceeding this threshold but meeting its overall individual standard if they hope to achieve the WUO by reducing more water under one or more of aggregate WUO under the proposed regulations. the other three individual standards. Moreover, the proposed regulations lack any Water Reductions Are Dependent on allowance for inaccuracies in the data that define Customer Behavior, and Many of the Easy the inputs, which summed together comprise the Changes Already Have Been Made. To achieve WUO. In only one instance are suppliers provided WUOs, suppliers will depend on customers making a buffer—if they would not otherwise be able to changes to reduce their water use. For example, achieve the WUO, they can include up to 20 percent customers will need to fix water leaks, replace of residential land area that is currently unirrigated, inefficient appliances and toilets with more efficient but could have been irrigated in the past or could models, convert lawns and landscapes to use less be irrigated in the future. However, this buffer is water, and use more efficient outdoor watering allowed only through June 30, 2027. Although DWR systems. To help achieve these actions, suppliers recommended distinguishing between irrigated and can encourage, support, and incentivize behavioral unirrigated when assessing irrigable landscapes— change, or they can mandate or prohibit certain which goes beyond what was included in activities (for example, they can ban watering AB 1668—it recommended always including a on certain days or require the use of hoses with 20 percent buffer. Under SWRCB’s more stringent Figure 14 How SWRCB’s Proposed Regulations Differ From DWR’s Recommendations DWR Recommendationa SWRCB Proposed Regulation Residential Outdoor Standard Include 20 percent of land area that could Until June 30, 2027, allow up to 20 percent of land be irrigated, but is not currently, in the area that could be irrigated, but is not currently, WUO.b to be included in the WUO, if the supplier would otherwise not achieve the WUO. No unirrigated land area could be included after that date. Set the final landscape efficiency factor at Adopt DWR recommendation until 2035 but 0.63 beginning in 2030. further reduce the landscape efficiency factor to 0.55 beginning July 1, 2035. CII Landscapes With Set the final landscape efficiency factor at Adopt DWR recommendation until 2035 but Dedicated Irrigation Meters 0.63 beginning in 2030. further reduce the landscape efficiency factor to 0.45 beginning July 1, 2035. CII Performance Measures Require conversion to dedicated irrigation Require conversion to dedicated irrigation meter (or meter (or alternative) if land area is one alternative) if the customer uses 500,000 gallons or acre or more in size. more per year. N/A Require suppliers to provide water use data to owners of “disclosable buildings” (certain types of large buildings). a Based on statutory reports DWR submitted to SWRCB in September 2022. b Statute does not distinguish between irrigated and unirrigated landscapes, but rather requires the residential outdoor standard be applied to “irrigable” landscapes. SWRCB = State Water Resources Control Board; DWR = Department of Water Resources; WUO = water use objective; and CII = commercial, industrial, and institutional. www.lao.ca.gov 23 AN LAO REPORT shut-off valves). Mandating that customers take State Technical Support Cannot Address on major projects, such as lawn conversions, likely Toughest Local Challenges. Although DWR is not a practical or feasible approach. To comply and SWRCB have provided many public forums, with the earlier 20x2020 requirements, many educational materials, and online tools, these suppliers created voluntary rebate programs and forms of assistance do not directly lower costs for customers responded. However, that means many suppliers, nor aid suppliers in addressing some of customers—particular early adopters—have already the tougher challenges associated with achieving replaced appliances and fixtures (and to a lesser WUOs. For example, ensuring that residents degree, turf) with higher efficiency alternatives and effectively maintain drought-tolerant landscapes suppliers therefore will not be able to gain much likely will be costly and difficult for suppliers, more savings from them. Suppliers could have more and—absent providing additional funding—there difficulty convincing the remaining customers to is not much that the state can do to induce these modify their residences and behaviors, particularly individual-level actions. lower-income customers who are less able to afford Overly Aggressive Time Lines Could Have to make significant changes as well as customers Unintended Consequences. Although SWRCB’s who are less motivated by incentives. regulations are scheduled to be finalized two years Compliance Will Raise Costs for Suppliers— later than statute originally intended, none of the Potentially Significantly—at Least in the Near subsequent deadlines for suppliers have been Term. Suppliers’ costs likely will increase over the changed. These statutory time lines likely will be next decade as they approach the 2035 compliance difficult for suppliers to meet—particularly given the deadline. Such costs will include offering incentive delay in defining specific regulatory requirements— programs, conducting education and outreach, and could lead to adverse outcomes. For example, and repairing system leaks. In addition, suppliers a significant shift in how residents design, redesign, may need to increase staffing and/or contract out and maintain their yards will be required to achieve to comply with the new requirements. At the same the state’s desired outcomes and many lawn time, their revenues likely will decrease if they are conversions will be required. If this process is selling less water as customers conserve, since rushed, it could have unintended consequences, their rates typically are charged on a volumetric such as customers simply not watering their basis. (Their overall costs could be offset to some landscapes and trees (rather than converting them degree if decreased demand results in a drop in to drought-tolerant landscapes) or replacing grass how much water they need to procure or produce.) with artificial turf or other surfaces that increase Costs to implement the requirements could be heat. The potential negative impacts associated significant, particularly for suppliers that already with these outcomes are not what the state is are comparatively behind in their conservation seeking with the water use efficiency framework. practices or do not have potable reuse water they Framework Could Create can use to supplement their water supply and access the bonus incentive. Some suppliers have Disproportionate Impacts on outside sources of revenue (such as land leases Lower-Income Californians or hydropower energy facilities), but some rely Potential Rate Increases Could Be exclusively on customer ratepayers to support Particularly Burdensome for Lower-Income their operations. The latter group will feel the Customers. Affordability already is a problem cost pressures more acutely than those that can for some Californians. In its 2022 Drinking Water turn to other revenue options to undertake water Needs Assessment, which examined affordability conservation activities. among community water systems, SWRCB found that more than one-third of the 2,868 water systems it assessed had at least one indicator of unaffordability. Leveraging rates to achieve conservation can be an effective tool in some cases. 24 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT To the degree suppliers increase rates to cover Moreover, rebates typically do not cover the full the cost of implementing and achieving the WUO, cost of the replacement materials and labor. however, the existing affordability problem could For lower-income customers, this model may not be exacerbated for lower-income customers. work because they may struggle to afford both For example, if lower-income customers already the up-front costs and the difference between the limit their water use as a cost savings measure, they rebate amount and the total cost of replacement. may have less room to make further reductions to Water Savings Due to Conservation compensate for potential rate increases. In a recent study of Santa Cruz County, Stanford University Framework Likely to Be Modest researchers found that during the multiyear Some Reductions Will Continue to Occur drought that ended in 2016, increased water Regardless of This Framework. As noted rates and drought surcharges raised water bills previously, urban water use already has declined for lower-income customers while simultaneously in recent years, in large part due to several lowering bills for higher-income customers (who multiyear droughts; the 20x2020 requirements; were able to reduce their water use to more than and customers replacing inefficient appliances, offset higher charges). fixtures, and lawns. In addition, a previous law Many Suppliers Cannot Offer Customer established requirements that landscapes at new Assistance Programs. Suppliers that rely developments be designed more efficiently. These exclusively on their ratepayers for revenue cannot existing local programs and behavioral changes in offer customer assistance programs to help offset water use by customers likely will result in additional cost increases associated with implementing the water savings over time, even without the new new framework. This limitation is due to rules requirements. For example, SWRCB estimates that were added to the state Constitution by that even without the proposed new regulations, voter-approved Proposition 218 in 1996 requiring annual water use in 2035 would be 7.4 percent that property-related fees, such as water rates, lower than average annual water use over the benefit the ratepayer directly. Consequently, a 2017-2019 period. supplier cannot use the rate revenues collected California Continues to Have Some Untapped from higher-income customers to subsidize the Conservation Potential… Additional opportunities rates charged to lower-income customers. Some for conservation exist, however. For example, not suppliers use revenues from other sources (such all customers have replaced inefficient appliances as land leases) to lower the bills of qualifying or converted their lawns and landscapes. Recent lower-income customers, but this option is research from the Pacific Institute estimates that not available for all suppliers. This means that future annual urban water use could be reduced some suppliers have limited options for helping by 30 percent to 48 percent compared to average ameliorate the impacts that higher costs stemming annual levels between 2017 and 2019. (This from water conservation activities might bring for research was not specifically predicting the impacts lower-income households. of the new requirements, but rather the potential Incentive Programs Can Be Challenging for for water savings more generally, given available Lower-Income Customers to Use. The types of technologies and practices.) strategies that water suppliers historically have …However, Total Amount of Water Conserved used to reduce water use may present difficulties Due to This Framework Likely to Be Modest. for lower-income households. Suppliers typically Relative to what annual urban water use would provide incentive programs (such as rebates for otherwise be in 2035 if the proposed regulations replacing inefficient fixtures, appliances, or lawns were not enacted, SWRCB estimates that the with more efficient options) as reimbursements to new requirements will result in a reduction of customers. This means the customer pays for the approximately 440,000 acre-feet annually. replacement and then applies for reimbursement. www.lao.ca.gov 25 AN LAO REPORT Although this would reflect a 9 percent additional been converted to drought tolerant landscapes, decline compared to SWRCB’s estimated baseline suppliers cannot turn toward those options during declining trends, the estimated amount of water a severe or prolonged drought if supplies are saved would represent only a small fraction—about running low and additional reductions are needed. 1 percent—of the state’s current total water use. This will represent a contrast in how the state has For comparison, as displayed earlier in Figure 2, the responded to droughts in the past, when it has agricultural sector uses about four times as much turned to residents to take both temporary and water as the urban sector. permanent actions to immediately reduce water use in response to limited supplies. That is, the state Unclear How Any Water Savings and local suppliers will have fewer new “levers to Would Be Used pull” to further reduce demand if needed. The 2018 Legislation Does Not Directly …However, Even Modest Water Savings Address How to Use Any Water Savings. If the Could Help Facilitate Greater Drought state were able to conserve several hundred Resilience, Depending on Local Circumstances. thousand acre-feet of water due to these new During wet years, the water saved due to this requirements, how it should account for or framework—even if modest—could be banked for redirect those savings is unclear. Senate Bill 606 use during dry years. For example, excess water and AB 1668 did not speak to this issue. In could be used for groundwater recharge or added drought years, when less water is available, water to surface storage. However, not all suppliers have conservation practices would help align demand this option, depending on their facilities, resources, with the lower supply. In wetter years, however, and specific circumstances. Greater conservation the decreased demand would presumably result could benefit suppliers that import water (because in more available unused water. This raises a key they do not have their own dedicated water source) question: how should the state account for that in both wet and dry years, as they will need to buy freed-up water and how should it be used, if at less water for their customers as the efficient use all? For example, if a local supplier is able to store of water increases. As such, the amount of drought the excess water, this would increase its resilience resilience that water conservation provides both at during the next dry period. However, the location a local level and statewide will depend on the water of water savings will not necessarily align with sources and storage options available. where future shortages might occur. If a particular Unclear if Framework’s Benefits Will supplier saves significant water in a wet year but has nowhere to store it, those savings will not help Outweigh the Costs buffer its shortages during a drought. Who will or Although SWRCB Estimates That the Benefits should benefit from those savings? of Implementing the Framework Will Outweigh As Water Use Efficiency Increases, Fewer Associated Costs… As shown in Figure 15, Options for New Water Use Reductions Are SWRCB estimates that the framework will result Available During Droughts… Although prior and newly adopted Figure 15 water conservation practices will SWRCB’s Estimates of the Costs and Benefits of the help reduce ongoing demand Water Use Efficiency Framework for water—which could alleviate Cumulative Costs and Benefits From 2025 Through 2040 (In Billions) pressure on the system during droughts—they also mean that Entity Cost Benefit fewer new, immediate options Urban retail water suppliers $9.9 $10.6 will be available to respond Wastewater management agencies 2.5 Not quantified to acute drought conditions. Residential customers 1.0 5.5 For example, once appliances Urban forestry and landscape management agencies 0.1 Not quantified have been replaced with more Totals $13.5 $16.0 efficient models and lawns have Note: Amounts may not add due to rounding. SWRCB = State Water Resources Control Board. 26 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT in cumulative statewide benefits of $16 billion over the review finds that SWRCB’s assessment likely the 2025 through 2040 period and cumulative understates the costs of the new requirements costs of $13.5 billion. The board estimates the for several reasons. For example, SWRCB does benefits would accrue to both urban water suppliers not assume that suppliers might have to spend (from having to supply less water) and residential more on individual rebates to incentivize lawn customers (from having to buy less water). conversion, despite the need to rapidly convince The costs will be borne primarily by suppliers, significantly more households to undertake wastewater agencies, and customers. The costs these conversions. The review also finds that to suppliers would result from paying for various benefits, such as not having to procure water for incentive programs coupled with lost revenues consumers (“avoided costs”), likely are overstated from selling less water. Costs to wastewater in multiple ways. For example, the review notes treatment agencies would result from less water that SWRCB’s assessment uses an avoided cost entering the system (we do not address these costs of procuring water that likely is higher than what in this report, although legislation requires the suppliers actually pay for water and escalates administration to prepare a separate report related wholesale water costs at a rate that likely is too to this issue by October 1, 2028). Suppliers and high. Ultimately, the review estimates that costs wastewater agencies will pass much of their costs would significantly outweigh the benefits—by a net on to customers through raising rates. The costs of $7.4 billion (in contrast, SWRCB projects a net to residential customers would result from higher benefit of $2.5 billion). rates and paying to replace inefficient fixtures, Calculation of Benefits to Costs for an appliances, and lawns (the portion not covered Individual Supplier Could Differ Widely From the by rebates). Statewide Calculation. While SWRCB’s analysis …Questions Have Been Raised About puts forth an estimate for aggregate statewide Some of Assessment’s Assumptions. A recent costs and benefits, circumstances for an individual review of SWRCB’s cost-benefit assessment supplier could differ significantly. For example, a conducted by an independent consultant, M. supplier will have more substantial compliance Cubed, raised questions about a number of costs if it must reduce its water use significantly, the board’s assumptions that could affect the lacks sufficient staffing, has fewer conservation bottom line conclusions displayed in the figure. programs in place, and/or does not have any Based on our appraisal, this review raises some potable reuse water (and thus cannot increase its credible critiques and concerns that challenge total WUO by accessing the bonus incentive). On our confidence in SWRCB’s conclusions. For the other hand, a supplier could accrue greater example, SWRCB’s assessment compares benefits if it already has robust conservation the estimated effect of the new requirements programs and potable water recycling facilities— against what would happen in the absence of the meaning that any additional conservation would requirements (the baseline condition). The review decrease the amount of water it would need to noted that some of the baseline assumptions about purchase for its customers. Moreover, as noted future water use could be flawed. For instance, above, a suppliers’ near-term, up-front costs are SWRCB’s assessment does not assume any likely to be significant (and therefore challenging) reductions in system water losses (even though even if its overall benefits outweigh those costs in water losses must be reduced beginning in 2028 the long term. per earlier legislation and regulations). Moreover, www.lao.ca.gov 27 AN LAO REPORT RECOMMENDATIONS As summarized in Figure 16, in this section we Reduce Complexity by Refining Statute provide a number of recommendations for how and Requiring Corresponding Changes the Legislature could facilitate implementation of to Regulations its landmark urban water conservation legislation. Given that SWRCB’s proposed regulations still We believe adopting these recommendations could are under consideration and will not be adopted help improve the benefits of the water efficiency until summer 2024, the Legislature has a window of framework relative to its costs, as well as ease opportunity for making some changes to existing implementation and administrative burdens for statute and requiring that these changes be local suppliers. incorporated into regulations. Below, we suggest Use Legislative Oversight Tools changes that could simplify CII requirements, make to Reevaluate Framework at Key the inclusion of variances more realistic, and clarify other details. If the Legislature wanted SWRCB to Milestones incorporate these changes into the first version Use Legislative Oversight Authority to Make of regulations, it would have to pass additional Changes as Needed. Given that SWRCB has legislation this spring. The Legislature also could not yet adopted final regulations, the Legislature attempt to influence the board’s decisions on has a near-term window of opportunity to address final regulations by detailing its desired changes some of the known issues with the water use in a letter from a majority of legislative members efficiency framework. For example, as discussed and/or key leadership staff to the administration. below, the Legislature could consider adjusting deadlines to create a more feasible implementation schedule Figure 16 for suppliers. In addition, as Summary of Recommendations highlighted earlier in Figure 9, the Legislature built in several 9 Use Legislative Oversight Tools to Reevaluate Framework at Key opportunities for longer-term Milestones oversight and it potentially • Use legislative oversight authority to make changes as needed. can make revisions or provide 9 Reduce Complexity by Refining Statute and Requiring Corresponding guidance throughout the phased Changes in Regulations implementation of this framework. • Simplify CII requirements or consider allowing alternative compliance pathways. For instance, statute requires DWR • Simplify the process for applying for variances and decrease threshold. • Clarify other implementation details. to submit a report to the Legislature • Give suppliers the option of reporting on a calendar- or fiscal-year basis. by January 1, 2028 assessing 9 suppliers’ progress toward Support Suppliers in Achieving WUOs achieving their WUOs. Depending • Allow suppliers to use SWRCB’s WUO estimates. • Require DWR to provide more robust technical assistance to suppliers. on the report’s findings, the • Consider easing some of the individual standards. Legislature could consider making • Extend some deadlines. changes to the standards set to 9 take effect in 2030 and 2035. We Consider Options for Reducing Burden on Lower-Income Customers • Consider how new and existing state programs and funding could support suggest the Legislature carefully urban conservation goals. oversee implementation and 9 continue to reassess whether any Develop Strategy for How Water Savings Could Be Tracked and Used of the standards or components of • Identify a coordinated approach to accounting for and taking advantage of water savings. the process should be modified. CII = commercial, industrial, and institutional; WUOs = water use objectives; SWRCB = State Water Resources Control Board; and DWR = Department of Water Resources. 28 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Although such an approach would not compel the self-certifications are genuine. This “trust, SWRCB in the same way as statutory direction, it but verify” approach would reduce workload for could be simpler to accomplish than rapidly passing SWRCB and eliminate the requirement that unique legislation and could be influential. uses meet an arbitrary threshold of total water use Simplify CII Requirements or Consider in the WUO. Allowing Alternative Compliance Pathways. Clarify Other Implementation Details. We also We recommend the Legislature direct SWRCB to recommend the Legislature consider directing simplify the proposed CII performance measures— SWRCB to make the following changes to address which exceed the requirements contained in implementation uncertainties: statute—to reduce the workload and costs for • Clarify Who Should Collect Landscape customers, suppliers, and the administration. Data in the Future. Given the significance For example, revised regulations still could require of landscape measurements as inputs suppliers to demonstrate increased efficiency to the WUO calculation, we recommend and reduced water use among CII customers, the Legislature determine what entity is but could grant them more latitude about how to responsible for collecting this information on achieve those water savings. If the Legislature an ongoing basis—the state or the individual wished to retain SWRCB’s proposed method for suppliers—and how often it should be classifying CII customers, it could consider giving collected. DWR initially collected these data suppliers some flexibility around which customers for outdoor residential landscapes (and is in to target for efficiencies rather than requiring the process of doing so for CII landscapes), that they focus on the top water users within but at a significant cost, and the department 22 different categories. Moreover, it could consider currently does not have ongoing funding in directing SWRCB to lengthen the reporting its budget for this purpose. The Legislature period for classifying CII customers, converting either could commit to providing future mixed-use meters to dedicated irrigation meters, funding to DWR for this activity (approximately and implementing best management practices so $6 million each time for residential landscapes these requirements need not be reported annually. and $13 million for CII landscapes), taking It also could consider directing SWRCB to remove advantage of the state’s economies of scale, the proposed requirements related to disclosable or it could leave this task up to individual buildings, particularly given these were not included suppliers. If it chooses the latter, it might in statute. consider ways to help smaller, less resourced Simplify the Process for Applying for suppliers undertake this effort. Variances and Decrease Threshold. Although • Require SWRCB to Align Regulations With statute allows suppliers to increase their WUOs New Law on Nonfunctional Turf. Given the through variances to account for unique uses of recent approval of AB 1572 to ban irrigation of water (such as for evaporative coolers and for CII landscapes using potable water beginning horses and livestock), the proposed regulations in 2027, we recommend the Legislature require create a steep bar for inclusion by requiring a SWRCB to remove its proposed requirement unique use to account for at least 5 percent of that would do the same beginning in 2025. the total WUO. The Legislature could consider requiring SWRCB to allow any amount of water Give Suppliers the Option of Reporting on a used for unique uses to be added to the WUO. Calendar- or Fiscal-Year Basis. We recommend Moreover, to reduce complexity and barriers, the the Legislature adjust reporting deadlines to allow Legislature could consider directing SWRCB to use suppliers the option of using either a calendar a self-certification process rather than requiring year (January to December) or fiscal year (July to an application process that SWRCB would have to June) for reporting WUOs and actual water use. review and approve. SWRCB could randomly audit This would make reporting easier for suppliers as a select number of variances each year to ensure they could use the accounting period already built www.lao.ca.gov 29 AN LAO REPORT into their operations. This change would require implementation. (The Legislature could describe amending statute and directing SWRCB to make its expectations and define the activities that a corresponding change in proposed regulations. DWR should conduct either through budget The administration noted to our office that, from trailer bill legislation—especially if it approves an its perspective, there are no obvious drawbacks appropriation to cover the potential costs of this to changing the deadline or providing two assistance—or through other legislation.) This could reporting options. include directly helping suppliers to calculate their WUOs and developing tools and specific strategies Support Suppliers in Achieving WUOs for suppliers to undertake these steps on their own In the previous section, we highlighted some of in subsequent years. Such assistance also could the key challenges that suppliers face in complying include helping suppliers strategize and develop with the water use efficiency requirements. plans for reducing demand among customers. Ultimately, successful implementation of these Providing more robust technical assistance, requirements will mean the state is using water including some onsite consultation, would increase more efficiently. Yet if the requirements are too state staffing costs for DWR somewhat—likely in stringent, achieving the required amount of the low millions of dollars annually—but could help water savings could be unfeasible. Below, we make these regulations more effective and improve suggest several changes that could address these the chances of successful implementation at the challenges and make compliance somewhat more supplier level. realistic for suppliers. Consider Easing Some of the Individual Allow Suppliers to Use SWRCB’s WUO Standards. SWRCB has structured the proposed Estimates. Given that SWRCB developed regulations such that the individual standards supplier-level estimates to build its Water Use that feed into the WUO calculation would become Objective Exploration Tool, the Legislature could more stringent over time, potentially reaching consider allowing suppliers to use these estimates levels that are unrealistic to achieve. This approach for their WUOs rather than requiring them to essentially negates much of the flexibility that was calculate a WUO independently. One trade-off supposed to be available to suppliers in achieving is that SWRCB’s estimates do not account for their WUOs. Specifically, it removes some of the variances or water losses. However, many suppliers wiggle room suppliers might have used to make up will not have significant variances and they could for falling short in meeting one standard through add their water losses to SWRCB’s estimates. over-performing for another. To retain some of this Providing this option could significantly reduce intended flexibility, we recommend the Legislature the amount of work for the supplier. SWRCB is consider passing legislation to ease some of continuing to refine this tool, which presumably will these standards through one or more of the lead to increasingly precise estimates for individual following steps: suppliers. To enable this option on an ongoing • Make 2035 Outdoor Residential Standard basis, the Legislature would need to require Less Stringent. The Legislature has a couple SWRCB to regularly update the tool with new data. of options for adjusting the proposed 2035 Require DWR to Provide More Robust outdoor residential standard. (Although Technical Assistance to Suppliers. As noted SWRCB’s regulations would establish two previously, we found through interviews that many interim standards prior to 2035, the proposed suppliers do not yet understand what is required of 2035 standard appears to be the most them nor have the necessary capacity to conduct problematic for suppliers.) The Legislature the various analyses needed to comply with the could require the administration to provide new water efficiency requirements. We recommend a report within the next several years on the the Legislature add requirements for DWR to effectiveness of the current design standard provide more robust technical assistance to for newly constructed residential landscapes. suppliers, particularly during the first few years of 30 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT This standard, first initiated by Chapter 1145 of framework—where it simply is part of the 1990 (AB 325, Clute) and since updated overall calculation rather than an additional several times by statute and executive order, standalone requirement—could provide is equivalent to the standard proposed to be additional flexibility for suppliers in meeting applied to existing residences beginning in their aggregate WUOs. This could help 2035. A key question for the administration streamline reporting requirements as well. to answer is whether the data from newly Although the state has goals for limiting the constructed landscapes show that over time amount of water that is wasted through leaks, these landscapes in fact use the same amount because water losses are built into the WUO of water for which they were designed, and those priorities still would be preserved. if they use more, an explanation for these • Maintain Flexibility in Calculation for divergences. Understanding the extent to Irrigable Landscapes, Allowing Inclusion of which the design standard does not perform Some Landscapes That Are Not Currently as intended—and the reasons why—in turn Irrigated. One of the components suppliers will help the Legislature understand whether must use to calculate their WUOs is the square it is realistic to use that design standard as an footage of landscapes that are irrigated. ongoing performance standard for existing As described earlier, the proposed regulations properties. Depending on the findings from would allow suppliers some wiggle room in such a study, the Legislature could adjust calculating this factor—they can include up to the standard proposed by SWRCB for 20 percent of the landscapes that ostensibly existing landscapes. A second option would are not irrigated currently (based on DWR be to codify the DWR recommendations data), but are the type of landscape that for 2035 outdoor residential landscape could be irrigated in the future. However, the standards, which are less aggressive than the proposed regulations only would allow this levels proposed by SWRCB. data flexibility through June 30, 2027, at which • Increase Bonus Incentive Percentages for point no land area that appears unirrigated Potable Reuse. Senate Bill 606 (and thus could be included in the calculation. The the proposed regulations) places a cap on Legislature could consider allowing this the amount of water by which a supplier can data buffer on an ongoing basis (as DWR increase its WUO to account for potable reuse had recommended in its report), given that water (either by 10 percent or 15 percent there could be many reasons an irrigable depending on the year its recycling facilities landscape might not be—or might not appear became active). The Legislature could to be—irrigated currently but could be in the consider modifying statute to increase this future. This would help suppliers comply with cap. This would make it easier for certain requirements as it would it would increase suppliers to meet their WUOs, although it the WUO and it provides a reasonable buffer would only benefit those that have or are able given uncertainties around the precision of to build recycling facilities. these data. • Remove Requirement to Meet Standalone Extend Some Deadlines. Given that SWRCB’s Water Loss Standard and Keep as Part of regulations have been delayed and are not the Overall Framework. As noted earlier, scheduled to be adopted until about two years pursuant to SB 555, the water loss standard after the statutory deadline, we recommend the is the only of the four components of the WUO Legislature also extend some of the deadlines for that suppliers must also meet as a standalone suppliers. One possibility is to extend all deadlines requirement (rather than just in aggregate by two years to account for and mirror the delayed across the four standards for the overall the regulations. Given how many suppliers are not WUO). Making the water loss requirement ready to comply—based on what we learned from similar to the other standards within the overall the administration and others—the additional time www.lao.ca.gov 31 AN LAO REPORT would give the state the opportunity to educate Develop Strategy for How Water and work with the smaller and less-resourced Savings Should Be Tracked and Used suppliers to improve their chances of successful Identify a Coordinated Approach to implementation. Moreover, this additional time Accounting for and Taking Advantage of Water could help support suppliers’ implementation of Savings. As noted, urban water use represents more sustainable strategies that limit the potential a relatively small share of the state’s total water for unintended consequences, such as avoiding use and these new requirements likely will result extensive tree canopy harm or removal. in only modest water savings during wet years. Consider Options for Reducing However, these savings, if used effectively, could help local suppliers and/or the state better manage Burden on Lower-Income Customers and meet Californians’ water needs through Consider How New and Existing State periods of drought. This is a key rationale for Programs and Funding Could Support Urban undertaking the development and implementation Conservation Goals. The proposed framework of these new requirements. Yet whether these new includes some accommodation for suppliers with changes actually help the state meet this ultimate high proportions of lower-income customers in objective will depend on how the water savings are that it allows for certain delayed deadlines, but that accounted for and used. We therefore recommend assistance is relatively modest and will not address the Legislature define its priorities related to any key challenges. Certain constitutional barriers water savings that result from this framework and make it difficult for water suppliers to target their begin developing an approach to account for funds toward assisting lower-income customers and direct that water. This will require grappling with rate affordability. Absent making changes to with several key questions. For example, should the Constitution, the state is limited in how it can suppliers be allowed to store or bank water savings direct water suppliers to address this goal. As such, at the local level? What, if anything, would need we recommend the Legislature consider how the to change in terms of state permitting and water state might focus its support and funding toward rights requirements to enable this year-to-year water suppliers serving lower-income customers. carryover? Should certain uses of “excess” saved For example, to the degree it wants to prioritize water be prohibited? How should conserved water state funding for addressing water conservation be considered at a statewide level? Does the goals, the Legislature could consider targeting Legislature want to redirect some freed-up water support for direct installation programs (as an to achieve statewide goals (such as related to the alternative to rebate programs) for lower-income environment)? How could savings in one location customers. This could help address some of the help when there are shortages in another area? The barriers such customers face in affording the Legislature has numerous options to explore these up-front costs of appliance and turf replacement issues. For example, it could consider requiring projects while they wait for reimbursements. the administration to prepare a report, or could Not only would this strategy contribute to water convene a task force with diverse stakeholders to conservation goals, it likely also would allow generate recommendations. While developing such lower-income customers to save on their water bills a strategy will be a complicated undertaking, it is as they would use less water over time. In recent key to ensuring the state is able to meet the ultimate years, the state funded a program through DWR— goals of the water conservation legislation—using the Urban Community Drought Relief Program— water more wisely in the context of changing water which allowed grants to support direct installation supply and demand conditions. projects. Depending on what forthcoming data show about the success of this program, the Legislature could consider providing additional funding in the future with an explicit focus on direct installation programs for lower-income households. 32 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT CONCLUSION The water use efficiency legislation approved in These concerns do not lead us to recommend 2018 builds on the achievements of several previous that the Legislature abandon the water conservation water conservation efforts. It does so in a way efforts it initiated through SB 606 and AB 1668. that allows the state’s urban retail water suppliers Rather, we think this period before SWRCB adopts to develop more tailored efficiency objectives the final regulations offers the Legislature an that factor in their local characteristics. As one opportunity to make some changes to simplify strategy among numerous water management compliance, ease implementation burdens, and efforts, increasing water use efficiency could lower associated costs—and thereby help maximize help the state weather periods of prolonged and the potential benefits of pursuing water efficiency severe drought and reduce reliance on overdrafted improvements. While our recommended changes groundwater basins. could reduce the amount of potential water savings Despite these potential benefits, the amount somewhat, slightly easing the standards could of water that might be saved due to SWRCB’s increase the likelihood of actually achieving those proposed regulations would be modest relative to savings. Moreover, the Legislature will not have the state’s total water use—only about 1 percent. any assurances that water conserved during wet We therefore find it highly questionable whether years is actually helping meet the state’s ultimate these possible benefits would merit the amount goals unless it has a way to account for and direct of work and cost associated with implementing that water to address its priorities, including the requirements as they currently are proposed. drought resilience, support for the environment, These doubts are particularly worrisome given and groundwater recharge. As such, beginning we find that suppliers will face notable challenges to develop a plan for how the state will track and complying with these requirements. In particular, handle any water savings that could result from the we find that some of the proposed requirements new requirements is a key future step in California’s are overly complicated and that some—including overall water management strategy. the proposed 2035 standard for outdoor residential water use—may be unrealistic for suppliers to achieve. In several cases, SWRCB proposes requirements that go beyond what DWR recommended, thereby reducing suppliers’ flexibility for how to achieve water use efficiency goals. Moreover, the potential costs for suppliers to implement the requirements—particularly in the near term—could be significant and have a disproportionate impact on lower-income ratepaying customers. www.lao.ca.gov 33 AN LAO REPORT 34 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT www.lao.ca.gov 35 AN LAO REPORT LAO PUBLICATIONS This report was prepared by Sonja Petek and reviewed by Rachel Ehlers. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 36 LEGISLATIVE ANALYST’S OFFICE