LOS ANGELES — The California State Water Board's newly approved water conservation rules will challenge some water utilities more than others, Fitch Ratings said.
"Many of California's utilities will find themselves between a rock and a hard place trying to implement the reductions," Fitch Ratings Director Andrew Ward said in a prepared statement.
While no one questions the need for drought solutions, he said, the rules oppose utilities' long-term investments and disincentivizes future planning.
"Utilities that issued debt to fund critical long-term projects may be forced to spend down reserves or divert capital funds because they can't sell water they saved for droughts," he said. "Funding uncertainty means that even the utilities that planned well for drought may take a hit."
Fitch released an April 28 report on the court decision.
Fitch expects utilities to raise rates to account for the higher cost of providing services and reduced revenues, if they have not already done so, in response to the state's recently announced mandatory 25% reduction in water usage, Ward wrote in the report.
California's 4th District Court of Appeal recently ruled in a case brought against the city of San Juan Capistrano last week that tiered rates are allowable but must be tied to the cost of service, as required by the state's Proposition 218.
