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Water Rate Plan Illegal -- Decision Could Weaken Drought Measures

By Casey C. Sullivan, Esq. on April 24, 2015 | Last updated on March 21, 2019

In a decision that could undermine California's ability to respond to increasingly dire drought conditions, a state appellate court has ruled that San Juan Capistrano cannot implement tiered water rates that are not based on the cost of service provision. Under the city's plan, the rate charged for water usage increased depending on the overall amount of water used. Users in the lowest tier paid about $2.50 per unit -- the most profligate water users paid over three times that rate.

The city's plan is designed to encourage water conservation by increasing water's cost the more one uses. It also violates a state law prohibiting government agencies from charging more than the cost of a service, the court found.

Tiers Are Allowable, but They Must Be Based on Cost

San Juan Capistrano's tiered system itself was not the problem, the court found. Rather, under Proposition 218, adopted by voters in 1996, all rates must reflect the "cost of service attributable" to a given parcel. Thus, tiered rates must rise in proportion to the greater cost associated with providing greater service. San Juan Capistrano's plan did not attempt to calculate the costs of providing water at each tier's usage -- its prices were severed from the costs of services.

The city's arguments were not enough to sway the court, even as the opinion openly questioned the logic behind Proposition 218. The city had claimed that it did not have to calculate the costs of service at incremental levels. This, however, ran contrary to Prop. 218. The Proposition not only required cost of service calculations, it also required that courts construe its requirements liberally to limit government revenue. Further, those calculations were not the sort of quasi-legislative, discretionary decisions beyond the court's purview.

Dessicated Wasteland Here We Come!

The court's decision threatens to make water conservation even more difficult throughout the parched Golden State. Just a few weeks ago, Governor Jerry Brown made headlines by instituting the first ever state-wide, mandatory water restrictions for urban users. Brown's executive order requires the state Water Board to reduce urban consumption by 25 percent.

The order requires anticipates suppliers adopting new surcharges, fees and penalties to improve conservation. It also directs the state Water Board to identify mechanisms that would facilitate the adoption of rate structures and pricing plans to promote lower water usage.

The state court's decision this week could make that more difficult. While the opinion does not outright disallow tiering, it reemphasizes that tiered prices must be tied to the costs of providing services, not to other criteria, such as water conservation.

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