On Monday, a state appellate court affirmed a lower-court ruling regarding how water rates must be determined.

The decision said, “The trial court did not err in ruling that Proposition 218 requires public water agencies to calculate the actual costs of providing water at various levels of usage.”

The 4th District Court of Appeal did not throw out tiered rates many water districts use, including all three on the Hill, but emphasized that these rates must be based on the actual costs, not a pre-determined scale.

“While tiered, or inclined rates that go up progressively in relation to usage are perfectly consonant with [the state’s constitution], 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,” the three-judge opinion said.

In a quickly released announcement, Gov. Jerry Brown said, “The practical effect of the court’s decision is to put 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.”

He also added that the state’s lawyers will review the decision.

The decision also approved using water rates to raise revenue for capital projects. It questioned whether low-volume users might be subsidizing the cost of these facilities needed to serve high-volume users.

The justices concluded that the California Constitution would permit “water agencies passing on the true, marginal cost of water to those consumers whose extra use of water forces water agencies to incur higher costs to supply that extra water.”