PHOENIX - Proposed changes to California's drought regulations would likely result in higher sales and better financial performance for water issuers in fiscal 2017, according to Fitch Ratings.
The proposal, which the State Water Resources Control Board will decide on May 18, would allow water providers to reduce their mandated cuts based on local conditions following several months of above-average rainfall due in part to the recurring weather pattern known as El Niño. California remains in the grip of a historic drought, however.
"Based on climate, population growth and alternative water sources, including recycled water, the credits could reduce the conservation requirements by as much as 8%," Fitch said, noting that mandated cuts as high as 36% of pre-drought levels led sales to fall sharply across the state. But even though the implementation of the new system could be a positive for utilities, Fitch doesn't believe it will be a true game-changer now that acceptance of the conservation mandates has set in.
"The changes in water use patterns under the current mandate will likely lead to a lower normal consumption level being maintained," the rating agency said. "Furthermore, despite the recent rise in supplies, some drought risk remains. Any recovery in sales could be reversed if the prolonged dry conditions continue or worsen and the state returns to conservation mandates."
"California water utilities have generally weathered the historic drought quite well, with little movement in ratings," the agency continued. "Fitch expects its ratings to remain stable as utilities continue to implement, and customers continue to accept, rates adjustments to recoup fixed costs and improve financial margins."
Gov. Jerry Brown originally declared an emergency condition due to the drought in January 2014. He followed that with several additional executive orders to speed up drought response or impose further restrictions on water usage. He issued an executive order last week to make many of the statewide temporary conservation measures permanent, saying that El Niño rainfall hasn't solved the state's drought problems. The state Water Board consists of five full-time salaried members, each filling a different specialty position.
