Tiered price ruling rocks CA water districts

water meter 2A recent court ruling’s effects on water pricing have upset California’s already tenuous balance between cost and availability.

As CalWatchdog.com reported last month, “the 4th District Court of Appeal struck down San Juan Capistrano’s tiered water fee plan because it violated Prop. 218’s restriction that any fee must be for the cost of service and no more. The court found that by creating a 4-tier fee plan that charged $2.47 per unit for first tier water usage up to $9.05 a unit for greater usage the plan was not based on the cost of the water service.”

That has Golden State water agencies struggling to figure out their next steps. “The vast majority of urban water agencies in California use some form of tiered rates, which are seen as a key conservation tool as communities work to comply with Gov. Jerry Brown’s order to slash water use by 25 percent over the next year,” the Los Angeles Times observed.

“Long-time rate consultant Sanjay Gaur said aggressively increasing rates — especially those that charge more than $10 per unit — could raise red flags. He estimated that at least a third of the state’s water suppliers would need to ‘do a better job explaining their tiered rates and the rationality behind them.'”

Early this month, regulators had moved to adopt dramatic new tiered rates meant to reflect Gov. Jerry Brown’s order to slash municipal consumption. The State Water Resources Control Board decided to require “up to 36 percent reductions from the biggest water users,” as BuzzFeed reported. “The cities in the highest tier were singled out after failing to make significant cuts over the previous year.”

Uneven impact

Not all water agencies with tiered pricing found themselves in a crisis situation, however. The court’s ruling only applied to punitive tiered pricing. Tiers based around the relative cost and availability of providing water, by contrast, were allowed to continue.

Big Bear CityIn Big Bear, for instance, prices won’t have to change, said City Community Services District General Manager Scott Huele. “Our rates are not punitive. They more accurately reflect the added expense of constructing infrastructure that is needed to deliver larger volumes of water to customers using larger volumes of water.”

Meanwhile, the Orange County case that produced the controversial court ruling has been sent back to a lower court for an additional hearing. Lawyers for the city of San Capistrano, which lost the tiered pricing lawsuit to local plaintiffs, had petitioned the court to reconsider its judgment. Attorney Michael Colantuono, representing the city, argued that “the punitive pricing system is not subject to Proposition 218, which mandates government fees be based on the cost of service and not arbitrarily inflated,” according to the Orange County Register.

That was welcome news for Gov. Jerry Brown, who had slammed the decision. Republicans have not been quite so vocal. According to the New York Times, state Republican standout and Fresno Mayor Ashley Swearengin has suggested her city “is not ready for tiered pricing even though, she says, ‘conceptually, I think it makes sense.'”

Regional reputations

In a Field Poll conducted this February, the Sacramento Bee noted, “pluralities of voters in every region in California said the state should be allowed to bypass environmental regulations protecting fish in the San Francisco Bay and Sacramento-San Joaquin River Delta — except one. In the San Francisco Bay Area, nearly two-thirds of voters disagreed.”

Visions have persisted in Northern Californians of luxury, vanity and water waste in the Southland. But despite the frequent stories of outsized consumption by celebrities and golf courses, recent data has painted a different picture. “Southern California has made huge strides in conservation,” according to the Bee. “Regional water agencies have invested in storage and water recycling. Total water consumption in the region has remained flat over the past 15 years, despite population growth.”

Celeste Cantú, former director of the State Water Resources Control Board, said that “Southern California really did get the message. We’ve added millions of people, and our potable water is the same.”

3 comments

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  1. Itachee
    Itachee 13 May, 2015, 09:06

    Speaking as a CA water resources engineer (retired) I can say this ruling can be extremely problematic for urban agencies trying to achieve water conservation goals and mandates. But I would suggest there is an alternative, a rate structure used by many agricultural agencies. That is to allocate water to each parcel. based on parcel size And if the water user exceeds tthe allocted amount they are shut off and pay a hefty overuse charge. And they remain turned off until the next year’s allocation. The problem is of oourse that ag agencies usually allocate water on a yearly, rather then monthly basis, and read meters and bill monthly. So in an urban environment it would be fairly labor intensive and probably require new computer soft water if not systems. But it does work. The user simply cannot use more then their allocation.

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  2. Wayne Lusvardi
    Wayne Lusvardi 13 May, 2015, 09:58

    The California Water Resources Control Board made a mistake in calling their nine levels of mandated water reductions”TIERS” (4%, 8%, 12%, 16%, 20%, 24%, 28%, 32%, 36%).

    This is being confused with the price tiers in the Capistrano water rate case.

    They are not the same thing.

    However, mandated water reductions will result in cities and water districts having to raise their water rates to cover their COST OF SERVICE. But, again, this will have nothing to do with the Capistrano case court ruling.

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  3. John Galt
    John Galt 13 May, 2015, 13:30

    Cost-of-service water rate design has been the standard rate making practice in water systems (private and public) throughout the US for at least 75 years and is easy to explain from an operational and cost accounting perspective. Most fixed costs (water distribution plant, buildings, overhead, etc.) are recovered via a fixed monthly service charge per meter (e.g., $20/month) often tied to meter size capacity. On the other hand, variable operating costs (those costs that vary with usage such as power for pumping, wholesale water purchases, chlorination, etc) are usually collected by a single commodity charge (e.g. $2.50/100 CF) for all usage.

    In recent years, many California public water agency boards have arbitrarily set water budget usage levels in tiers thereby identifying “good” through “wasteful” usage levels, often supported only by circumstantial evidence. Prop 218, and finally, after 20 years, this court decision, requires pricing the service and commodity at no more than actual costs at any given usage level. Further, I believe the judge wrote that arbitrarily setting “budget” usage tiers was not appropriate unless supported by facts in agreement with AWWA water rate design principles.

    Note that many water districts only read meters and bill customers once every two or three months (only four or six meter readings per year). As such, these utilities don’t have monthly customer usage data that is needed to set fact-based tiered rates that can overlay and align to the utility’s actual hourly, daily and monthly operating costs (variable marginal costs). If bi-monthly or quarterly meter reading water districts charge customers under inverted, progressive, commodity rate tiers, such rates are no more than wild ass guesses! Flat commodity rates for all usage amounts tied to actual costs (compared to estimated marginal costs for arbitrarily set budget based tiers), offer water customers a high level of fairness not often found in California utility rates, but now mandated by Prop 218, and case law, at least for public agency water customers.

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