California Court Undercuts Drought Plan

     SANTA ANA, Calif. (CN) – A California appellate court ruled Monday that San Juan Capistrano’s tiered water-rates — meant to encourage conservation — violate a voter-approved law that prohibits government agencies from charging more than the cost of a service.
     A three-judge panel of the 4th District Court of Appeal upheld a ruling that charging bigger water users incrementally higher rates violated Proposition 218, which voters approved in 1996 to limit service fees imposed by local agencies.
     San Juan Capistrano used a four-tier rate structure that charged customers who use small amounts of water a lower rate than customers who use more. The price of water increased steeply between the tiers, with the highest tier costing nearly 370 percent more than the lowest.
     San Juan Capistrano’s 2010 rate structure charged customers $2.47 per unit of water in the first tier and $9.05 per unit in the fourth tier.
     The Capistrano Taxpayers Association sued the city in 2012, claiming the rates were arbitrary and unfair because they were not based on cost.
     “You can have a tier system as long as it’s done in compliance with Prop. 218’s themes of proportionality, transparency and cost-based services. What the City of San Juan had was arbitrary tier rates,” plaintiffs’ attorney Benjamin Benumof told Courthouse News.
     Judge William Bedsworth, writing for the appellate court, said that the court hopes that in the future there will be scientists and legislators “with the wisdom to envision and enact water plans to keep our beloved Cadillac Desert habitable,” but that is not the court’s mandate.
     “In this case we deal with parties who have an acute appreciation of how tenuous the beachhead is, and how desperately we all must fight to protect it. But they disagree about what steps are allowable – or required – to accomplish that task. We are called upon to determine not what is the right – or even the more reasonable – approach to the beachhead’s preservation, but what is the one chosen by the state’s voters,” Bedsworth wrote.
     The appellate court found that tiered pricing is legal, but it must reflect the additional cost of providing higher volumes of water to some customers. Above-cost-of-service pricing for tiers of water service is not allowed, the court ruled.
     “The water agency here did not try to calculate the cost of actually providing water at its various tier levels. It merely allocated all its costs among the price tier levels, based not on costs, but on pre-determined usage budgets,” Bedsworth wrote.
     The city failed to explain why it could not anchor rates to usage.
     “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. Such computations would seem to satisfy Proposition 218, and City Water has not shown in this record it would be impossible to comply with the Constitutional mandate in this way or some other,” Bedsworth wrote.
     The appellate court’s decision upholds a Superior Court judge’s 2013 decision that San Juan’s rate structure was invalid. The city changed its tiers, making them less steep, while awaiting the outcome of the appeal.
     The appellate ruling comes in the midst of one of the state’s worst droughts and shortly after Gov. Jerry Brown directed water agencies to develop rate structures that use price to force conservation.
     At least two-thirds of California water providers use some form of tiered water pricing.
     Brown said that the court’s decision 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, adding that state lawyers are reviewing the decision.
     Benumof said that he does not believe the ruling will adversely affect the water conservation issues in the state, but will bring greater clarity to the situation.
     “There are studies out there that say that arbitrary tier rates do not achieve conservation goals. There is no incentive for a majority of users to conserve,” he said. “There are so many ways to promote conservation.
     “You can have legitimate penalty ordinances outside of your rate structure to punish water wasters. That’s a fair way to do it. You can have subscribed activities that are considered wasteful. People will get noticed and fined and have an opportunity to be heard. At least there’s due process in that situation. When you bury so-called penalties into a rate structure, that’s not cost-based, that’s hidden taxation. That’s what Prop. 218 is all about, eliminating hidden taxation.”
     The court did hand San Juan Capistrano one victory by reversing the Superior Court ruling that Prop. 218 does not allow public water agencies to pass on the costs of capital improvements to users.
     “Water rate fees to fund the costs of capital-intensive operations to produce more or new water, such as the recycling plant at issue in this case, do not contravene article XIII, section 6, subdivision (b)(4) of the Constitution. While that provision precludes fees for a service not immediately available, both recycled water and traditional potable water are part of the same service – water service. And water service most assuredly is immediately available to City Water’s customers now,” the ruling states.
     The City of San Juan Capistrano did not immediately return a request for comment.

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