Court rules tiered rates violate state constitution

Governor says the decision straps ‘ straitjacket’ on reduction efforts

In a ruling with major implications for California’s water conservation efforts during the historic drought, a state appeals court on Monday ruled that a tiered water rate structure used by the city of San Juan Capistrano to encourage saving was unconstitutional.

The Orange County city used a rate structure that charged customers who used small amounts of water a lower rate than customers who used larger amounts.

But the 4th District Court of Appeal struck down San Juan Capistrano’s fee plan, saying it violated voter- approved Proposition 218, which prohibits government agencies from charging more for a service than it costs to provide it.

The stakes are high because at least two- thirds

of California water providers, including many in the Bay Area, use some form of the tiered rate system.

Gov. Jerry Brown immediately lashed out at the decision, saying it puts “a straitjacket on local government at a time when maximum flexibility is needed. My policy is and will continue to be: Employ every method possible to ensure water is conserved across California.”

Brown said the state’s lawyers are now reviewing the decision.

It remained unclear Monday evening what effect the ruling would have on other agencies that use tiered rates.

“Our attorneys are reviewing the decision and are evaluating its impacts, if any,” said Abby Figueroa, a spokeswoman for the East Bay Municipal Utility District, which uses three tiers to price its water in units that range from $ 2.91 for the first 172 gallons a day to up to $ 4.42 for all water used in excess of 393 gallons per day.

San Jose Water Co. , which provides water to 1 million people, has tiered rates, but as a private company is not affected by Proposition 218.

Water experts have cited studies for years showing that higher costs for water reduce consumption, but critics say it penalizes residents who have larger lots and live in warmer areas.

One city that has put in place a system of very high costs for high use — Santa Cruz — has cut water use 24 percent since last summer, and has among the lowest per- capita water use levels in California.

In a mandatory rationing system imposed last year, suspended over the winter, and reimposed by the Santa Cruz City Council last week, the city allows every residential home to use 10 units of water a month. Each unit is 748 gallons.

The first four units cost $ 1.73 per unit, and units above that cost $ 4.40 per unit. The city imposes a $ 50 fee per unit — believed to be the highest in the state — on residents who use more than 11 units.

That fee, which sent some water guzzlers’ bills skyrocketing, will not be affected by Monday’s court ruling, however, said Rosemary Menard, Santa Cruz’s water director, because it is clearly labeled a “penalty” in the city ordinance and is not used to pay for daily operations of the water system.

“The penalties, I’m sure we’re not changing,” she said. “They don’t have anything to do with this.”

As other cities struggled to meet tough state water conservation targets, others may copy Santa Cruz’s system, she said.

“It works pretty well,” Menard said. “If you raise the price of water, people will use less of it, especially for discretionary uses” like overwatering lawns during a historic drought.

Penalties aside, the court said that tiered water rates are legal as long as the government agency can show that each rate is tied to the cost of providing the water.

“The water agency here did not try to calculate the cost of actually providing water at its various tier levels,” the court said of San Juan Capistrano. “It merely allocated all its costs among the price tier levels, based not on costs but on predetermined usage budgets.”

The highly anticipated decision comes in the wake of Brown’s executive order directing water agencies to develop rate structures that use price signals to force conservation. His order, which also requires a 25 percent reduction in urban water usage, marked the first mandatory water restrictions in state history and came as the state enters a fourth year of an unrelenting drought.

Some Bay Area agencies said Monday the case will not affect them.

“I don’t see any impact ( on) our district based on the way we put our rate system together,” said Contra Costa Water District spokeswoman Jennifer Allen. “It’s based on cost of service.”

“( Today’s decision puts) a straitjacket on local government at a time when maximum flexibility is needed.”

— Gov. JerryBrown

In the San Juan Capistrano lawsuit, a group of residents sued that city, alleging that its tiered rate structure resulted in arbitrarily high fees. The city’s 2010 rate schedule charged customers $ 2.47 per unit of water in the first tier and up to $ 9.05 per unit in the fourth. The city, which has since changed its rate structure, was charging customers who used the most water more than the actual cost to deliver it, plaintiffs said. The law, they argued, prohibits suppliers from charging more than it costs to deliver water.

Experts say 66 percent to 80 percent of California water providers use some type of tiered rates. A 2014 UC Riverside study estimated that tiered rate structures similar to the one used in San Juan Capistrano reduce water use over time by up to 15 percent.

An author of the study, Ken Baerenklau, said the effect was greatest on the heaviest water users. In a previous interview with The Los Angeles Times, he said that if the court found in favor of the plaintiffs, as it did Monday, the decision “would be a big deal” because it would “stand in the face of significant momentum” toward tiered rates.