Court ruling could affect water rates across California, Sonoma County

A recent court ruling casting doubt on the legality of tiered water rates in San Juan Capistrano could have broad implications for the price of water in Sonoma County, where most cities also have rates that increase with usage to encourage conservation.

All Sonoma County cities except Healdsburg charge residential customers rates that go up when they use more water, a structure that came under fire from a small band of San Juan Capistrano ratepayers who branded the Orange County city’s higher rates arbitrary.

They argued that the city’s rates, the highest of which are nearly quadruple the lowest, violated Proposition 218, the 1996 law intended to protect taxpayers from unfair fees.

They sued and won, and two weeks ago won again at the appellate court level, making water managers across the state sit up and take notice. Gov. Jerry Brown, who is trying to guide the state through its fourth year of drought, blasted the ruling as putting a “straitjacket” on local conservation efforts “at a time when maximum flexibility is needed.”

Ever since, cities around the state have been trying to figure out what the ruling means for their rate structures.

“There has been a lot of head-?scratching in the last two weeks,” said Bob Reed, president of the Reed Group, a consulting firm used by several North Bay cities to help establish and justify utility rates.

Some officials view the ruling as specific to San Juan Capistrano and how it imposed its rates, not a broad indictment of tiered water rates or a sign that local rates will have to change.

“It’s a San Juan Capistrano case, and it applies to San Juan Capistrano,” said Dan St. John, director of Petaluma’s Public Works and Utilities Department, which has four distinct rates for single-family homes, depending on the volume of water used per month.

St. John said the city was already in the process of reviewing its rates and will simply make sure its higher tiers are justified by the system’s costs.

“We are confident that we are on solid ground,” St. John said.

Others, however, are not so sure. Terry Crowley, director of Healdsburg’s utility department, said few in the water industry are dismissing the ruling.

“Most people agree it has pretty broad implications,” Crowley said.

Healdsburg charges a flat use rate of $4.28 per hundred cubic feet, or 748 gallons. The city never implemented tiered rates because, while it probably would have been effective at aiding conservation efforts, it may have been hard to justify given the structure of the city’s water system, Crowley said.

The city gets its water primarily from wells along the Russian River, unlike other cities that have to buy theirs from the Sonoma County Water Agency. “Basically, the cost to produce each gallon is the same for everybody whether it’s the first gallon or the last,” Crowley said.

San Juan Capistrano saw things differently. In 2010, the southern Orange County city set up a tiered system to charge the heaviest water users nearly four times more than the base rate. The Capistrano Taxpayers Association sued and in 2013 the Superior Court in Orange County sided with the ratepayers. The city appealed, but the appellate court unanimously agreed the city had failed to justify the higher rates.

“The water agency here did not try to calculate the cost of actually providing water at its various tier levels,” the three-judge court wrote. “It merely allocated all its costs among the price tier levels, based not on costs, but on predetermined usage budgets.”

San Juan Capistrano officials say they plan to petition the appellate court to rehear the issue, and will ask the city council soon to decide whether to petition the state Supreme Court for review, Santa Rosa City Attorney Caroline Fowler said.

Santa Rosa instituted three usage tiers in 2007 and added a fourth in 2010, said David Guhin, director of Santa Rosa’s water department. The fourth tier was added specifically to “put pressure on those highest users” and guide them toward the lower tiers, he said.

The city’s lowest tier charges all users $4.86 per 1,000 gallons. The highest rate is more than double that, charging home owners $10.48 for every 1,000 gallons beyond the water-guzzling rate of 22,000 gallons per month.

The results speak for themselves, Guhin said. Santa Rosa was the only one of 11 North Bay cities and water agencies that came out ahead of revised conservation standards issued last month by the State Water Board, which is implementing Brown’s demand for a statewide 25 percent cut in water consumption this year. The city’s 18 percent savings since 2013 is already above and beyond the 16 percent savings being demanded by the state.

“The bottom line is pricing does help support conservation efforts,” Guhin said. “You see it in how successful Santa Rosa has been in reducing our water use and moving people into lower tiers.”

Reed, who was recently hired by Santa Rosa to conduct a new rate study, said it may make sense that certain costs, like billing, should be shared by all users equally. But he said he could foresee cities with different water sources being justified in charging large users more given that the costs of acquiring, moving and treating additional water increases.

Windsor’s latest rate study, which Reed authored, says there is a “sound cost basis” for its tiered rates. The city gets most of its water from municipal wells, but augments that supply with purchases of more expensive water from the Sonoma County Water Agency. The rates of the highest tier, which charges users $5.87 per 1,000 gallons, or about twice the base rate, are justified because of the need to purchase additional water, according to the study.

Reed said he could even envision the cost of a community’s conservation efforts being used to justify tiered rates.

“Conservation is a way of generating water, if you will,” he said.

You can reach Staff Writer?Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @srcitybeat.