Case may set wa­ter rate prece­dent

A court rul­ing in a San Juan Capis­trano chal­lenge may change how agen­cies charge con­sumers statewide.

Los Angeles Times - - CALIFORNIA - MATT STEVENS matt.stevens@la­ Twit­ter: @ByMat­tStevens

An ap­pel­late court rul­ing due by next week could put a glitch in plans to reach Gov. Jerry Brown’s goal of slash­ing ur­ban wa­ter use by 25% statewide.

When Brown an­nounced on April 1 his his­toric or­der to cut wa­ter use from 2013 lev­els, he told wa­ter agen­cies to use pric­ing struc­tures that en­cour­age con­ser­va­tion. In other words, he di­rected them to charge higher rates to peo­ple who use the most wa­ter.

But those kinds of rate struc­tures are un­der fire in a San Juan Capis­trano case that could af­fect wa­ter dis­tricts statewide. State law pro­hibits wa­ter agen­cies from charg­ing more for wa­ter than the cost of pro­duc­ing and de­liv­er­ing it. A group of San Juan Capis­trano res­i­dents has chal­lenged the city’s tiered rate struc­ture, ar­gu­ing that it re­sulted in ar­bi­trar­ily high fees.

About two-thirds of Cal­i­for­nia wa­ter agen­cies al­ready use some type of tiered struc­ture, and the Los An­ge­les Depart­ment of Wa­ter and Power is con­sid­er­ing ex­pand­ing its tiers, charg­ing even more for high use.

An ap­peals court is ex­pected to is­sue a de­ci­sion in the case this week. If the court pub­lishes its opin­ion, wa­ter lawyers say the de­ci­sion could have ma­jor im­pli­ca­tions for agen­cies that use or are con­sid­er­ing adopt­ing tiered rates.

Stephanie Pincetl, direc­tor of the Cal­i­for­nia Cen­ter for Sus­tain­able Com­mu­ni­ties at UCLA, is among sev­eral ex­perts who say tiered wa­ter rates are cru­cial to con­ser­va­tion. Rates are likely to in­crease no mat­ter how the San Juan Capis­trano case is de­cided, she said, and tiered rates are a more eq­ui­table way to charge for wa­ter use.

What are tiered rate struc­tures and who uses them?

At least two-thirds of Cal­i­for­nia wa­ter dis­tricts use some form of a tiered rate struc­ture. Those pro­grams usu­ally charge less for low us­age and pro­gres­sively more as use in­creases. The city of San Juan Capis­trano’s 2010 rate sched­ule, the one be­ing chal­lenged in court, charged cus­tomers $2.47 per unit of wa­ter in the first tier and up to $9.05 per unit in the fourth. The Los An­ge­les Depart­ment of Wa­ter and Power also em­ploys a tiered rate struc­ture, but it has only two tiers sep­a­rated by less than $2 in price.

About a third of Cal­i­for­nia’s ur­ban wa­ter dis­tricts use flat rate struc­tures that charge cus­tomers the same amount for each unit — 748 gal­lons — of wa­ter used. Typ­i­cally un­der those struc­tures, cus­tomers are charged the same amount no mat­ter how much wa­ter they use.

Ex­perts say steep tiers en­cour­age cus­tomers to keep their wa­ter use — and their bills — low.

Why did the lower court find that tiered rates were il­le­gal in San Juan Capis­trano?

Res­i­dents ar­gued that the city’s tiered pric­ing vi­o­lated Propo­si­tion 218, a 1996 law in­tended to pre­vent lo­cal gov­ern­ments from goug­ing tax­pay­ers. The law pro­hibits agen­cies from charg­ing cus­tomers more than the “cost of the ser­vice” pro­vided.

At as much as $9.05 a unit in the high­est tier, the city was charg­ing cus­tomers who used the most wa­ter more than the ac­tual cost to de­liver it, the plain­tiffs said.

A Su­pe­rior Court judge agreed, declar­ing the city’s rate struc­ture in­valid in 2013.

In his de­ci­sion, Judge Gre­gory Munoz wrote that the city failed to es­tab­lish “cred­i­ble ev­i­dence that the rate in­creases were pro­por­tional to the costs of pro­vid­ing wa­ter.”

Since that rul­ing, the city has flat­tened its tiers and tied charges more di­rectly to wa­ter costs while it awaits the ap­pel­late court de­ci­sion.

What could the ap­pel­late court de­cide?

The court could re­turn a nar­row rul­ing that per­tains only to San Juan Capis­trano or it could in­val­i­date tiered rates en­tirely, said Michael G. Colan­tuono, an at­tor­ney rep­re­sent­ing the city in its case.

More likely, how­ever, the court will take a mid­dle road. It could is­sue a rul­ing that re­minds wa­ter dis­tricts that they must ex­plic­itly tie wa­ter charges to ac­tual ser­vice costs. It could also is­sue a pre­scrip­tive rul­ing that dic­tates specif­i­cally how a wa­ter agency can al­lo­cate its costs and struc­ture its rates.

If the court rules in fa­vor of the res­i­dents, wa­ter agen­cies could still jus­tify us­ing tiered rates by ty­ing them to a spe­cific wa­ter source, such as the Colorado River or a lo­cal aquifer. Then, agen­cies could charge cus­tomers based on the vary­ing costs of get­ting wa­ter from those sources. The key would be en­sur­ing the rates are not what plain­tiffs called “ar­bi­trary,” Benjamin T. Benu­mof, an at­tor­ney for the plain­tiffs, and other wa­ter lawyers have said.

Wa­ter lawyers have also sug­gested that agen­cies that re­ceive wa­ter from whole­salers, such as the Metropoli­tan Wa­ter Dis­trict of South­ern Cal­i­for­nia, could tie in­creased costs to sur­charges im­posed dur­ing ra­tioning. The MWD is ex­pected to vote Tues­day on a plan to cut its wa­ter al­lo­ca­tions by 15%. Wa­ter dis­tricts that use more than they are al­lo­cated would be hit with ex­pen­sive sur­charges, costs they are likely to pass on to cus­tomers who use large amounts of wa­ter.

The Los An­ge­les Depart­ment of Wa­ter and Power is con­sid­er­ing ex­pand­ing its price tiers from two to four to make big wa­ter users pay even more.

“LADWP is closely mon­i­tor­ing the San Juan Capis­trano case,” the agency said in a state­ment Mon­day.

What are the im­pli­ca­tions of this case for the rest of Cal­i­for­nia?

If the ap­peals court pub­lishes its opin­ion as ex­pected, the rul­ing will be­come case law in Or­ange County, which lawyers can cite as prece­dent in fu­ture cases, Benu­mof said. If the 4th Dis­trict Court of Ap­peal rules in fa­vor of the plain­tiffs, wa­ter dis­tricts that use sim­i­lar tiered rate struc­tures could be sued on sim­i­lar grounds if they don’t change how they charge.

Wa­ter dis­tricts lo­cated in ap­peals dis­tricts out­side of Or­ange County would not tech­ni­cally be bound by the de­ci­sion, but wa­ter lawyers are likely to rely on it as they ar­gue fu­ture cases, Benu­mof said.

It’s not clear whether San Juan Capis­trano would ap­peal if the city loses.

John Perry, one of the res­i­dents who helped cre­ate the tax­payer group that sued the city, is now on the City Coun­cil. On Mon­day, he said that be­cause the rate struc­ture has been re­vised, the coun­cil is un­likely to in­struct the city to ap­peal.

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