Appellate court ruling rejecting San Juan’s tiered water rates could have statewide impacts
By Allison Jarrell
A California Fourth District Court of Appeals ruled Tuesday that San Juan Capistrano’s tiered water rates are unconstitutional. Water agencies across the state have paid attention to the verdict, which has the potential to impact cities utilizing tiered rate systems to encourage residents to conserve water during California’s ongoing drought.
The court released a 28-page ruling on April 20, detailing its process for deciding that San Juan’s 2010 tiered water rate system did not sufficiently show that each tier was based on usage and the actual cost of water delivery.
“Water rates must reflect the ‘cost of service attributable’ to a given parcel,” the ruling states. “…the tiers must still correspond to the actual cost of providing service at a given level of usage. 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…”
However, within the decision, the appellate court did end up reversing part of a previous ruling in 2013 by Orange County Superior Court Judge George Munoz, which found San Juan’s rate structure was completely illegal. The appellate court judges wrote that charging customers for “the capital costs of improvements to provide additional increments of water – such as building a recycling plant” satisfies “constitutional and statutory requirements.”
But the essence of the case, the decision heard around the state, was that San Juan’s water pricing violated the constitution.
“City Water’s pricing violates the constitutional requirement that fees “not exceed the proportional cost of the service attributable to the parcel,” the ruling reads. “This is not to say City Water must calculate a rate for 225 Elm Street and then calculate another for the house across the street at 226. Neither the voters nor the Constitution say anything we can find that would prohibit tiered pricing. But the tiers must be based on usage, not budgets.”
The appellate court decision comes following years of controversy surrounding San Juan’s water rates and its groundwater recovery plant. In August 2013, the city’s rate structure was declared illegal by Judge Gregory Munoz in a lawsuit brought against the city in 2012 by the Capistrano Taxpayers Association, led by residents Jim Reardon and Councilman John Perry. Perry was appointed to City Council in February and separated himself from the organization upon becoming a council member. The city went on to appeal the ruling and continued to charge customers based on the model in question.
The CTA claimed that the city’s rate structure violated Prop 218, and went further to claim that water rates were financing a “phantom bond” used to fund water operations, even though a bond was never issued. In July 2014, San Juan adopted a new rate schedule, which ended up costing about 60 percent of residents more money, while customers in the highest two tiers were charged less than the previous model.
Perry and Reardon reported that, overall, they’re happy with the ruling.
“The opinion is kind of remarkable in a couple of ways,” Perry said. “The judge bought the argument we made that water tiers must provide clear and convincing evidence that they’re based upon usage at a particular tier, as well as the cost of that usage. The appeals court could not find convincing financial data in their rate study that would show how the tiers were developed.”
“It’s been 19 years since voters passed Prop 218, and this court has finally explained, I think with some precision, what it really means,” Reardon said.
But how the decision will impact conservation has turned into a fiercely contested subject. Gov. Jerry Brown, for example, released a statement condemning the court’s decision and its impact on conservation. The ruling came after Brown imposed a mandatory 25 percent cutback in water usage statewide on April 1.
“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 the statement. “My policy is and will continue to be: employ every method possible to ensure water is conserved across California.”
The governor’s statement also mentioned that the April 20 decision is being reviewed by the state’s lawyers.
Kelly Salt, a San Diego attorney who served as amicus counsel in the case, said she was disappointed in the court’s decision that agencies “must calculate the incremental cost of providing water at the level of use represented by each tier.”
“The court’s analysis appears to suggest that the only incremental cost justification is based on the cost of specific sources of supply,” Salt wrote in an email. “But water service means more than just producing, treating, acquiring and delivering water to property. It includes managing and ensuring an ongoing, potable supply of water for all water users. One of the most effective means of managing an agency’s water resources is through rate structure design, such as tiered and allocation based rates.”
In Reardon’s opinion, the ruling isn’t the death toll for conservation. He says nothing in the decision prohibits tiered pricing; it just states that each tier, and the differences between them, must be justified.
“If people in the water business would give up this almost religious fervor they have about tiers, they would probably be able to realize that they can achieve conservation through a single rate without much trouble,” Reardon said. “It’s going to have an effect on the way everybody sets water rates, not just San Juan Capistrano. It’s a good outcome for taxpayers, who are too often leaned upon to support government activity without full disclosure of the fact that they’re doing so.”
The city, which released a statement about analyzing the decision and the city’s options, must now decide whether to go back to court over the recycled water rates, or perhaps move on to focusing on the cutbacks ahead.
“It could end right here,” Perry said. “The council could accept the fact that the tiered rates are illegal and not ask the question about whether or not the recycled water rates were legal, because right now the recycled rates are undecided.”
Cracking Down on Conservation
The city’s top three tips for saving water are:
• Watch the watering schedule: More water is wasted in sprinkler systems than anywhere else.
• Check your toilets for leaks: Sneaky plumbing malfunctions can waste hundreds of gallons a day.
• Be thrifty and think ahead:
* Run the clothes washer and dishwasher only when they are full.
* Watch the running water—turn off water features unless they recirculate.
* Wash vehicles using as little water as possible and use a shut-off nozzle.
* Repair plumbing and sprinklers promptly; ensure water runoff isn’t leaving your yard.
* Clean paved surfaces and structures using a broom.
Turf removal program offering rebates for eligible customers: www.ocwatersmart.com
Watering Index/Watering Calculator: www.bewaterwise.com/calculator.html
For more information regarding water conservation, contact Francie Kennedy, water conservation coordinator for the city of San Juan Capistrano, at 949.487.4304 or email@example.com. Visit www.sanjuancapistrano.org to view the city’s full list of conservation resources.