California State Water Resources Control Board Adopts Permanent Water Conservation Rules

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Over the past decade, California has faced two multi-year droughts that resulted in temporary water use restrictions. The temporary restrictions were lifted when drought conditions subsided. In an effort to ensure adequate water supplies for future droughts, the California legislature passed two bills in 2018 (AB 1668 and SB 606) that permanently impose water conservation measures. The legislation established a new long-term water use framework for municipal water suppliers in California and called on the California State Water Resources Control Board (SWRCB) to adopt implementing regulations for the following:

• Water consumption in residential premises;
• Water consumption outside residential buildings;
• Landscape irrigation; and
• Water loss.

On July 3, 2024, the SWRCB adopted the required implementing regulations. Although these regulations are effective January 1, 2025, no water use restrictions will be implemented until 2027. These regulations do not directly limit water use by individuals or businesses and do not apply to suppliers of irrigation water (i.e., nonpotable water), suppliers with fewer than 3,000 connections, or those that deliver less than 3,000 acre-feet of water per year. The regulations will apply to approximately 405 municipal water suppliers (including cities, water districts, and private water companies) that provide drinking water to approximately 95% of California’s population. However, many of these suppliers already have water conservation efforts that meet regulatory standards.

For providers whose environmental efforts will need to be stepped up, the regulations do not establish a one-size-fits-all approach. Instead, each provider’s water protection thresholds will be adjusted based on factors such as local climate and precipitation, local land use (with higher thresholds for newly constructed residential areas and land used for livestock or agriculture), levels of recycled water supplies, and historical water use. Recognizing that lower-income areas may find it more difficult and costly to meet the standards, average household income is also taken into account. Information on the characteristics of each provider’s service area can be found here.

Suppliers must establish annual water budgets for their customers’ indoor, outdoor, and garden irrigation applications, as well as water loss limits, which will be combined to establish a Water Use Goal (WUO). The WUO includes allowances for certain variances and temporary adjustments, such as the use of water in cooling centers during periods of extreme heat or to counteract adverse effects on wastewater collection and treatment, as well as bonuses for efforts to reuse potable water. In lieu of water budgets for landscape irrigation, suppliers may adopt alternative measures, such as installing dedicated irrigation meters or providing rebates for replacing inefficient irrigation equipment, replacing turf, or installing green infrastructure (e.g., ditches or rain gardens).

The EPC will be met even if individual components of the formula exceed their budgeted consumption limits in a given year. For example, if a supplier’s residential water consumption by its customers exceeds its budgeted amount, the EPC will be met if the sum of water consumption across all categories does not exceed the total EPC budget. Suppliers will be considered compliant if their customers’ water consumption in 2040 does not exceed 70% of their water consumption in 2026. The regulations require suppliers to reduce their water budgets at least every five-year period through 2040.

The regulations also require each municipal water supplier to provide the SWRCB in a machine-readable format, by January 1 of each year, beginning January 1, 2025: (i) its WUO; and (ii) a report detailing actual water consumption among various categories of users during the previous year. Penalties for noncompliance can be as high as $10,000 per day.

Compliance is expected to be more burdensome for smaller municipal water suppliers in lower-income areas, since many larger suppliers have already adopted water budget-based rates. Environmental groups have criticized the regulations, saying they require too little savings in the short term, while water industry groups have called for financial support from the SWRCB or other state agencies to ensure that the standards can be met without undue hardship for retail customers.

Kutak Rock LLP’s Public Finance Group has served as bond and disclosure counsel to municipal water suppliers in California and nationwide on numerous occasions. For more information on water conservation regulations, contact Cyrus Torabi in Kutak Rock’s Irvine office.