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Appeals court invalidates water rates meant to spur conservation

Many cities have relied on higher water rates to get residents to conserve. A new appellate court decision calls those rates into question.
Many cities have relied on higher water rates to get residents to conserve. A new appellate court decision calls those rates into question.
Stock image by Shaylor/Flickr Creative Commons

A state appellate court has thrown out a tiered pricing scheme for water rates in the city of San Juan Capistrano, saying that the rates meant to encourage conservation violated state law because the city did not adequately justify how the rates were calculated.

At least two-thirds of urban water suppliers use some form of tiered pricing. The appellate court ruling raises questions about tiered rates at an inopportune time for state water officials. Since the drought began, regulators have encouraged more urban water suppliers to adopt that method.

In a written statement, Governor Jerry Brown said that the decision will “put a straitjacket on local government at a time when maximum flexibility is needed.”

INFOGRAPHIC: Comparing cutbacks called for in state water conservation proposals

Tiered pricing causes customers to pay higher prices for using increasing amounts of water beyond set levels, or tiers. San Juan Capistrano was one of the first cities in the state to use the pricing method, as a way to encourage conservation. Since then a number of other cities have also adopted the rate scheme to encourage water savings, including the Los Angeles Department of Water and Power.

In 2012, rates set by San Juan Capistrano caused the price of water to increase steeply: the highest tier cost over 360% more than the lowest. So the Capistrano Taxpayers Association sued, arguing that the city can’t justify that money collected under a tiered rate system is proportional to the costs of providing water, a requirement cemented in state law by Proposition 218.

“We felt that the tiered water rate was obviously punitive and not based on cost, as required by 218. We filed a lawsuit on the basis of that observation, that it just wasn’t fair to the ratepayers,” said John Perry, a founding member of the Capistrano Taxpayers Association. “I think our position was vindicated, and this sets guidance to the rate makers of all of the water districts that they need to show a nexus between the fees they’re charging and the cost of service.”

Now a San Juan Capistrano councilman, Perry added that he would vote in favor of better-crafted tiered water rates. “But that’s not what we had [here],” he said. 

Writing for a three-judge panel, William W. Bedsworth upheld the fundamental idea of rates that increase with additional use. “Neither the voters nor the Constitution say anything we can find that would prohibit tiered pricing,” he wrote.

San Juan Capistrano still has tiered water rates, but the differences among the tiers are less steep than they were in 2012. Many Southern California water suppliers including Burbank Water and Power, Irvine Ranch Water District, and the Los Angeles Department of Water and Power currently use tiers. LADWP is considering a new framework that would move from 2 tiers to four, with the highest tier costing more per unit of water than it does now. 

Lawyer Ben Benumof, who represented the Capistrano Taxpayers Association, maintains that the decision will be good for water conservation efforts because it will promote efficiency.

"I think it’s going to be very persuasive statewide," Benumof says. "There are going to be some districts that are going to look at this and say, you know, voluntarily, we need to change." 

Paul Shoenberger, the general manager for Mesa Water District, which filed an amicus brief in the case supporting the taxpayers’ group, says that the decision will provide “clarity and consistency” for water providers. Mesa charges users a uniform volumetric rate for water, where every unit costs the same as the last; lawyers for the district have argued that it can communicate the need for saving water to its users through other means. 

But Kelly Salt, a lawyer for Best, Best and Krieger, said the decision may cause some water agencies confusion. “The court basically said that you must be able to calculate the incremental cost of providing water at the level of use represented by each tier, but they don’t tell you how to do that,” she says. “What are they considering to be the costs associated with that?” Salt argues that there are costs of providing an ongoing potable water supply, like conservation programs, that may not fit into the incremental analysis advocated by the court.

Brown says lawyers for the state of California are reviewing the decision. “My policy is and will continue to be: employ every method possible to ensure water is conserved across California,” he says.