Tiered Water Pricing to Spur Conservation Ruled Unconstitutional

An Orange County appeals court ruled Monday that San Juan Capistrano's tiered water rates are unconstitutional, potentially dealing a blow to agencies statewide that have used the pricing structure to encourage water conservation.

The 3-0 ruling by the 4th District Court of Appeal upholds a Superior Court judge's decision that found that charging bigger water users incrementally higher rates violates a voter-approved law that prohibits government agencies from charging more than the cost of a service.

The ruling comes shortly after Gov. Jerry Brown issued drought orders that call for rates, including tiered pricing, that encourage people to save water. About two-thirds of water districts in the state use some form of tiered pricing, and the ruling was being closely watched to see how it might apply beyond the appellate court, which is only binding in Orange County.

"The practical effect of the court's decision is to put a straitjacket on local government at a time when maximum flexibility is needed,'' Brown said in a statement. "My policy is and will continue to be: employ every method possible to ensure water is conserved across California.''

San Juan Capistrano charged nearly four times as much per unit of water for users in the highest tier to provide an incentive to conserve. Residents complained the higher rates were arbitrary and unfair.

"They were exponential, arbitrary and they magically appeared out of thin air,'' said attorney Benjamin Benumof, who represented San Juan residents. "We feel vindicated and feel the constitution was upheld.''

Under the ruling, tiered pricing would be legal, but it would have to be tied to the cost of the water, the court said.

San Juan Capistrano's 2010 rate schedule charged customers $2.47 per unit, 100 cubic feet, or 748 gallons, of water in the first tier and up to $9.05 per unit in the fourth.

While the city got water from five different sources, including the massive Metropolitan Water District, it failed to tie costs it passed on to residents directly to more expensive sources, the court ruled.

"Nothing in our record tells us why, for example, they could not figure out the costs of given usage levels that require City Water to tap more expensive supplies, and then bill users in those tiers accordingly,'' the court wrote.

The court said the tiered structure violated Proposition 218, a 1996 state law, because the highest rates exceeded the cost of delivering the water.

The city was reviewing the ruling and hadn't decided Monday what action to take.

After the state Superior Court declared San Juan Capistrano's rate structure invalid in 2013, the city flattened its tiers and tied charges more directly to water costs while it awaited the appellate court decision.

Benumof said taxpayers will seek refunds for the additional money they paid.

Resident Jim Reardon, who brought the lawsuit, said he was pleased with the ruling and had talked with the mayor Monday about working together to fix the issue.

Reardon, who replaced his lawn with succulents, bark, decomposed granite and other drought-tolerant landscaping, said the city should raise water prices on the 80 percent of people in the lowest price tier, including him, to inspire immediate conservation.

On a statewide level, he called on Brown to raise the wholesale water price.

"What he's doing is inventing a cottage industry of meddlers at the local level,'' Reardon said. "Real conservation comes with changing the price of water and that happens at the state level.''

The ruling will likely be cited in other lawsuits even though it doesn't extend beyond Orange County and could spur new lawsuits, lawyers said. Benumof is involved in two lawsuits already pending that challenge water rates in Glendale and in part of San Diego County.

Water agencies statewide were reviewing the ruling to see how it might affect current or future price structures.

Officials with the Los Angeles Department of Water and Power, which has a two-tier price system, were looking at the ruling to weigh how it might shift to a four-tier system, spokeswoman Michelle Figueroa said.

The ruling will make it difficult for agencies with tiered pricing who get water from a single source, said Kelly Salt, a lawyer who filed court papers supporting San Juan Capistrano on behalf of the Association of California Water Agencies.

Salt said she hoped the decision wouldn't have an impact beyond the city because tiered pricing is important to promote water savings.

Tiered rate structures reduce water use over time by up to 15 percent, according to a 2014 study at the University of California, Riverside.

Copyright AP - Associated Press
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