The role of tiered water rates to encourage water conservation is in jeopardy. Later this month or next, a California Court of Appeal will issue a decision that could eliminate or severely limit the use of rates based solely on the volume of use.

In August 2013, an Orange County Superior Court ruled that “[the city of San Juan Capistrano] failed to carry its burden of establishing credible evidence that the rate increases were proportional to the costs of providing water services to its customers.” (Capistrano Taxpayers Association Inc. vs. City of San Juan Capistrano)

The taxpayer’s association was not objecting to a water rate that charged a fee for usage, rather it claimed that the city failed to follow Proposition 218 in establishing a justification for charging higher rates for greater use.

Proposition 218, which state voters approved in 1996, requires special-district and government agencies to establish fees based on the cost of providing the service.

In this case, the argument was made that while the cost of providing service was established, the city did not establish higher costs for increased usage. Simply imposing higher-usage rates to discourage greater usage, even in a drought, is a social policy. Prop 218 does not authorize imposing fees or charges that can be based on the underlying costs of providing the service, and the Superior Court agreed.

While the city pointed to Article 10 of the state constitution, which states water conservation is “… in the interest of the people and for the public welfare,” Judge Gregory Munoz replied, “[the defendants] fail to explain why this provision cannot be harmonized with Proposition 218 and its mandate for proportionality.”

The city appealed the decision immediately and government agencies are awaiting the appellate court’s reaction this spring.

A reading of the decision is clear that Munoz did not object to tiered rates, but he agreed that the higher rates had not been justified based on costs.

Water experts in the state have expressed the view that with sufficient analysis and data, water agencies can demonstrate that the high-volume users are imposing extra costs. This might include higher electric costs for more pumping to supply water demand. Another cost is one of avoidance. As water demand grows, capital will be needed to acquire (through either purchasing or drilling wells) and store more water. Avoiding these capital costs is a result of customers who use less water.

While aware of the litigation, none of the local water districts have commented on how it might affect them if the Court of Appeal upholds the Superior Court decision.