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2023 Cost of Capital Adjustment – A Modest Decrease on Your Bill

August 1, 2023

Recently, you may have seen reports that the California Public Utility Commission (CPUC), which oversees San Jose Water (SJW) and other investor-owned water utilities, decided to reduce a component of your water bill referred to as the “Cost of Capital.” The most important takeaway from this decision is that you will see a modest reduction to your water bill.

What is Cost of Capital?

Cost of Capital (CoC) refers to the way that investor-owned water utilities, like SJW, pay for necessary capital improvements to the network of systems, pipes, pumps, tanks, and reservoirs that deliver the safe, high-quality, round-the-clock water service our customers rely on. The CoC is the part of your water rate that goes to repay both the equity and loans that are required to maintain and modernize our nearly 157-year-old water system.

Every three years, the CPUC requires the utilities it oversees to submit a proposed cost of capital application. After a thorough evaluation, it renders a final decision which is then implemented by the utilities for the three-year period. In some instances, there is a need to adjust the CoC outside the usual three-year period, such as when there are large shifts in US interest rates. This is called a Water Cost of Capital Mechanism (WCCM). The WCCM, now approved by the CPUC, provided for an adjustment in San Jose Water’s return on equity and cost of debt.

Lower rates on your water bill

The new rates went into effect on July 31, and reflect the WCCM-adjusted return on equity of 9.31%, a cost of debt of 5.26%, and an overall rate of return of 7.47%. SJW’s previously authorized rate of return was 7.64%. The new and lower rate of return will result in a slight decrease to water rates.  

Customers with a standard 3/4-inch meter will see a $0.05 per month decrease in service charge costs. The quantity rates will decrease $0.0031 per CCF in tier 1, $0.0047 per CCF in tier 2, and 0.0075 per CCF in tier 3.  One (1) CCF or hundred cubic feet is 748 gallons. 

Read the press release from SJW Group here for additional information on the Cost of Capital adjustment.