When Governor Jerry Brown put mandatory water restrictions in place a few weeks ago, he encouraged water districts to use tiered pricing, tied to usage, as a critical method for compelling conservation.

On Monday, a three-judge panel of the California Fourth District Court of Appeal ruled that’s unconstitutional (pdf). The judges said a water pricing plan had to be based on delivery costs, not conservation incentives, and that a water agency had to provide a calculation that showed why bigger users cost more to service.

Associate Justice William Bedsworth said that should be possible. “Such computations would seem to satisfy Proposition 218, and City Water has not shown in this record it would be impossible to comply with the Constitutional mandate in this way or some other.”

Governor Brown sounded skeptical. “The practical effect of the court’s decision is to put a straitjacket on local government at a time when maximum flexibility is needed,” he said in a statement.

The court struck down a four-tiered pricing plan used by San Juan Capistrano’s water agency because it violated Proposition 218, a ballot measure passed in 1996 at the urging of fiscal conservatives that prohibits local governments from levying new or increased tax assessments on property owners without local ballot voter approval by said property owners.

The California Supreme Court extended the reach of the law in 2006 to local water, refuse and sewer charges. One group could not be forced to pay more to subsidize the use of others. The practical effect of that was to force Palo Alto to lower rates for businesses and raise them for homeowners. 

San Juan Capistrano charged a higher rate to people who used more water. The first 748 gallons cost $2.47, but after 2,247 gallons the price climbs to $9.05, according to a chart in the Los Angeles Times. The agency has since reduced the steepness of the rates.

The attorneys for the San Juan Capistrano water agency cited the governor’s plea for cooperation in what he deemed California’s best hope of conserving enough water to avoid catastrophic shortfalls. The judges were sympathetic, but the law is the law:

“We hope there are future scientists, engineers, and legislators with the wisdom to envision and enact water plans to keep our beloved Cadillac Desert habitable. But that is not the court's mandate. Our job, and it is daunting enough, is solely to determine what water plans the voters and legislators of the past have put in place, and to determine whether the trial court’s rulings complied with those plans.”

The Times cited experts who said that 66% to 80% of water agencies use tiered pricing. A 2014 study at the University of California, Riverside studied 13,000 households from 2003 to 2008 and found that tiered pricing led to conservation savings of 15%. That was on top of other benefits.

Utilities were able to achieve stable fiscal balance in a volatile water market using pricing that better reflected to customers the additional costs of using lots of water.

The appellate court sent the case back to Superior Court to apply its ruling, some of which overturned a finding by now-retired Judge Greg Munoz in August 2013. The judge had found that San Juan Capistrano’s entire rate structure was unconstitutional. The appellate court scaled that back and said the costs of a water recycling plant could be spread to include customers who don’t receive a direct benefit from it.

–Ken Broder

To Learn More:

Court Rejects San Juan Capistrano's Tiered Water Rates, Which Could Have Statewide Implications (by Meghann M. Cuniff, Orange County Register)

Appeals Court Rejects Higher Water Rates for Big Users (by Bob Egelko, San Francisco Chronicle)

California Court Rules Water Pricing Plan Violates Law (by Adam Nagourney, New York Times)

Appeals Court Throws Out San Juan Capistrano's Tiered Water-Use Rates (by Matt Stevens and Monte Morin, Los Angeles Times)

An Innovative Approach to Promote Water Use Efficiency (University of California, Riverside)

Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano (California Fourth Court of Appeal) (pdf)