California is among the most progressive states regarding cost‐of‐service requirements for water rates. With the increasing need for water conservation, and increasing popularity of water budget rate structures, recent changes to California laws should be of interest to water utility managers. Water rates are regulated at the state level. The evolution of these regulations in California created a situation in which utility managers were not certain if conservation‐oriented rate structures would be upheld in court. The recent passage of Assembly Bill 2882 has lifted this uncertainty and set a precedent for other states. The growing popularity of water budget rate structures may accelerate even more now that they have been validated by California lawmakers. Allocation‐based inclining‐block rates were until recently infeasible because of the data management and lack of political will. The tide has changed in favor of such rates with the development of new information management tools, the public awareness of on‐going water resource issues, and the green light from lawmakers.

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