Analysis Group Principal Identifies Key Differences in Water Rate Comparisons
February 17, 2017
In response to questions from its customers, California Water Service Company (Cal Water) commissioned Analysis Group Principal David Sosa to conduct an independent analysis of water rates paid by customers in Cal Water's Oroville District, compared to rates paid by customers of a neighboring government-owned system, South Feather Water & Power Agency (SFWPA). Cal Water is a private (investor-owned) water utility that serves nearly 500,000 customers in 21 districts, including 3,500 Oroville customers; SFWPA is a government agency that provides residential and irrigation water services to 7,200 customers in communities nearby Oroville.
Proponents of government ownership of water utilities frequently claim that rates charged by investor-owned utilities are unreasonably high. In a new study, Dr. Sosa's analysis shows that SFWPA's rates were heavily subsidized by other revenue sources, whereas Cal Water's rates covered all of its operating expenses. In addition, Dr. Sosa found that Cal Water made substantially higher capital investments than SFWPA in order to maintain service quality. Finally, as a private utility, Cal Water provided additional tax benefits.
After controlling for these differences, Dr. Sosa concluded that Oroville's rates are, in fact, comparable to (and indeed, lower than) those for SWFPA. Dr. Sosa's study highlights the importance of accounting for key structural and financial differences across water systems in any comparison of rates. A comparison that fails to account for these differences may be inaccurate and misleading.