...California Demands Water Sales Reductions: California adopted emergency drought regulations in May 2015 that require a statewide 25% reduction in water sales. Each retail water utility is assigned a mandatory conservation amount (between 4% and 36%) by the California State Water Resources Control Board (SWRCB). The cutback levels and short compliance time frame present revenue challenges and heighten credit risk for California's retail water utilities. Initial indications in the state are positive in that utilities appear poised to meet their conservation targets. Lower Financial Performance Expected: As a result of reduced water sales, many utilities will experience reduced financial margins in fiscals years 2015 and 2016. Fitch Ratings believes water rate changes will begin to gain traction in fiscal 2016, with a more robust recovery of financial margins expected in fiscal 2017 even in the event the severe drought continues. Based on utility forecasts, median all-in debt service coverage...
