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By: Derek Cole, Partner, Cole Huber LLP

Nonpayment of bills for water service is an issue California water agencies have faced for many years. This problem became more acute with the impact of the COVID-19 pandemic, which has deprived many Californians of the ability to not only make ends meet, but to pay their utility bills, including for water service. A 2021 survey conducted by the State Water Resources Control Board (State Water Board) found that, during the pandemic, community water systems accrued $276 million in arrearages for residential customers and $43 million in arrearages for commercial customers.

The State has recently provided one-time programs to assist water agencies with some of these accrued debts, but going into 2023, many agencies will continue to deal with revenue shortfalls that accumulated during the pandemic. Given the number of programs, statutes, and regulations in place affecting this issue, it’s worth taking a look at what’s transpired so far and what’s on the horizon for water agencies and their customers.

The Water Shutoff Protection Act of 2018

California law has long permitted water providers to discontinue service to customers who do not pay their bills for service. But in 2018, the process for shutting off service became more heavily regulated when the Legislature enacted, and the Governor signed, Senate Bill 998 (Dodd), the Water Shutoff Protection Act. Under this law, public water systems with more than 200 service connections are now required to implement a number of measures to govern how they discontinue water service to residential customers. This includes requiring water suppliers to adopt written policies regarding termination of service and prohibits them from discontinuing service for at least 60 days following nonpayment. In addition, before discontinuing service, providers must give at least seven days’ notice of any intended termination and offer customers alternative payment arrangements by which delinquencies can be paid down, excused, or deferred. Customers must also be given the right to appeal the intended service termination. When customers suffer from certain health conditions or are financially unable to pay, service may not be discontinued. More information about SB 998 can be found here.

The Pandemic and Moratorium on Service Terminations

The Water Shutoff Protection Act requirements initially became effective in early 2020. But in the early days of the COVID-19 pandemic, they were effectively overriden by the Governor’s executive orders addressing the unprecedented public health emergency. Under these emergency orders, all water providers—including those with fewer than 200 connections—were prohibited from terminating service for nonpayment. (Exec. Order N-42-20; Exec. Order N-08-21 [extending prohibition through June 30, 2021].) This moratorium was continued  through the end of 2021. (2021 S.B. 155, § 19 [extending prohibition through December 31, 2021].)  Effectively, water providers were prohibited for most of 2020 and all of 2021 from terminating service for nonpayment, thereby impacting the revenue streams of numerous agencies and creating significant budget shortfalls for many agencies.

The California Water and Wastewater Arrearage Program

The right to terminate water service under the provisions of state law as enacted by SB 998 resumed in 2022 and coincided with the beginning of the California Water and Wastewater Arrearage Program (“CWWAP”), which the Legislature created in 2021 as part of a budget trailer bill (Senate Bill 155). Through this program, the Legislature empowered the State Water Board to provide nearly $1 billion to community water and wastewater systems for pandemic-related debt. The program covered unpaid customer bills for commercial as well as residential customers that accrued between March 4, 2020 and June 15, 2021. This was, however, a one-time program. The CWWAP funding cycle for drinking-water systems closed in early 2022.

The Low Income Household Water Assistance Program

In 2022, many water providers still had significant accumulated debt from customers who could not pay their bills during the pandemic. A federal program, the Low Income Household Water Assistance Program (“LIHWAP”), was available to service some of this debt. This program, administered by the California Department of Community Services and Development (CSD), was appropriated $116 million to assist low-income households—those making 60% of the state median income—that accrued arrearages before and during the pandemic. Like CWWAP, this program provided a one-time source of direct funding to water providers. Many providers applied for and received appropriations during 2022, which they were in turn able to provide to eligible customers. The direct funding cycle for providers to receive LIHWAP assistance closed in mid-2022.  But going forward, water providers may still enter into agreements with CSD to allow their ratepayers to apply for assistance under the program.  Unlike CWWAP, moreover, ratepayers may avail themselves of this assistance not only for debt accrued during the pandemic, but that accrued in 2022 and beyond.

SB 222 and the Governor’s Veto

In 2022, the Legislature considered SB 222 (Dodd), which attempted to create a long-term program for assisting ratepayers in paying for water service. Unlike CWWAP and LIHWAP, which provided one-time sources of funding, this new program, slated to be called the Water Rate Assistance Program, was intended to be permanent. It would have created a Water Rate Assistance Fund to be administered by the State Water Board. If the program had been adopted, community water systems would have been able to use this fund to provide rate long-term assistance to residential customers.

Governor Gavin Newsom, however, vetoed the legislation that would have enacted this program. In his veto message, the Governor acknowledged that “[l]owering costs and making sure Californians have access to safe and affordable drinking water is a top priority of this administration.” But noting that the program was intended to be permanent, he stated his belief that “[a]t this time, there is no sustainable, ongoing funding identified” for the program. The Governor observed that the estimated program costs—consisting of $20 billion in one-time spending commitments and more than $10 billion in ongoing commitments—had not been accounted for in the state budget.  For those reasons, he concluded he could not sign the bill.

       
Where Are We Now?

           
In 2023, water agencies will find themselves much where they were before the start of the pandemic, with a couple of exceptions. The LIHWAP remains a program where customers can receive assistance in paying their bills. And although service shutoffs are again an option for water suppliers to use for consistent customer non-payments, careful observance of Water Shutoff Protection Act (SB 998) requirements will be necessary. Agencies should ensure they have adequate written shut-off policies in place and that they strictly follow the Act’s notice, appeal, and hardship requirements.

Free Webinar for CSDA Members: Ratepayer Assistance Funding and Water Shutoff Laws

           
For those who found this New Laws Series article interesting, CSDA will provide a free webinar for members to hear more from the article’s author, Derek Cole of Cole Huber LLP.

Register for Webinar: Ratepayer Assistance Funding and Water Shutoff Laws

• January 30, 2023
• 10:00 a.m. – 12:00 p.m.

This presentation will address the requirements water providers must follow before terminating water service for non-paying customers.  The presentation will discuss the importance of having guidelines in place in advance for governing shutoffs and providing the notice, appeal rights, and ratepayer assistance the law requires.  The presentation will also discuss the federal and state programs available to water providers, both related to indebtedness incurred during the Covid-19 pandemic and afterward.  The presentation will discuss recent and likely legislation on this subject, and will describe practical measures water providers can implement to deal with the difficult subject of nonpayment of customer bills.

Stay tuned to the New Laws Series in CSDA eNews for more in-depth analyses on new laws affecting special districts.

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Communication is provided for general information only and is not offered or intended as legal advice. Readers should seek the advice of an attorney when confronted with legal issues and attorneys should perform an independent evaluation of the issues raised in these communications.