A court ruling is prompting San Diego to propose new water rates that eliminate discounts for conservation — requiring rate hikes for low-volume users and cheaper water for high-volume users.
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But the rate hikes for low-volume users are smaller than previously estimated, because plaintiffs in the court case agreed to a $40 million settlement — despite the courts awarding them $118 million.
Another factor allowing the city to soften the proposed hikes: Costs for wholesale water are shrinking, thanks to the County Water Authority securing deals to sell excess supply to water agencies in Riverside County.
The court ruling against the city is having a major impact across California by casting doubt on the rate structures of all water agencies that reward conservation — nearly every water agency in the state.
The state Supreme Court has agreed to address the issue by considering a court of appeals ruling on water rates in the city of Los Angeles that reward conservation. But a ruling in that case is not expected until 2027 or 2028.
San Diego City Council members harshly criticized Tuesday the ruling that bars them from rewarding conservation, but they also agreed to set an Oct. 6 public hearing to consider the new water rates proposed this week.
“When you use less, you should be able to pay less,” Council President Joe LaCava said. “No one’s happy with this, but a court order is a court order.”
The new rates, which would take effect in January, represent the same overall increase of 14.5% that the council approved last October.
But the increase would be divided up differently, with larger hikes for low-volume single-family homes and smaller hikes for high-volume single-family homes, apartment buildings and golf courses.
Rates for a typical low-volume single-family home, defined as a customer using 400 cubic feet of water per month, would rise to $85.33 in January instead of $79.69 — a 7% jump.
Rates for a typical average-volume single-family home, defined as a customer using 900 cubic feet of water per month, would rise to $140.78 instead of $132.96 — up 5.9%.
In contrast, rates for a typical high-volume single-family home, defined as a customer using 2,200 cubic feet of water per month, would be $309.41 instead of $328.93 — a 6% drop.
Rates for typical business and industrial customers would drop by 3%, rates for irrigation-only customers like golf courses would decline by 7% and rates for apartment and condominium buildings would also go down.
For a typical building with 10 units, the monthly bill would fall from $685.16 to $669.99. For a typical building with 250 units, the monthly bill would drop from $13,436 to $13,083.
In addition to ratepayers in the city of San Diego, the projected water rate changes would affect customers in Coronado, Imperial Beach and Del Mar who are part of San Diego’s water system.
San Diego City Councilmember Marni von Wilpert said she was frustrated by the court ruling against the city, which was issued last summer by the 4th District Court of Appeal in a class-action case called Patz v. City of San Diego.
“It just seems so unfair to charge the senior citizen who’s using a little bit of water the same rate as the golf course irrigator,” von Wilpert said Tuesday. “Those are completely different customers.”
Lisa Celaya, the city’s interim director of public utilities, said city officials still believe their tiered rates are legal.
“While the city believes the rate structure is legally compliant, the court has established a different legal standard,” Celaya said.
The court ruling relied on Proposition 218, which prohibits government agencies from charging more for a service than it costs to provide — a provision that can make things complicated for incentives that reward conservation or other behavior.
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To defend its tiered rate structure in court, the city argued that higher rates were justified by the differential between local and non-local water supply costs.
The city said water supplied to low-volume users came mostly from cheaper local water stored in reservoirs, while water supplied to high-volume users mostly came from more expensive, imported supplies.
Another rationale for tiers was that the city could have a smaller overall water system — fewer pump stations and pipes — if it had fewer heavy users.
The appeals court rejected those arguments in a 2-1 ruling, contending that the city couldn’t directly tie those extra costs to the behavior of heavy users.
Celaya said Tuesday that the ruling sets a high bar for any water agency that wants to reward conservation with tiered pricing.
“On the customer side, we would need to know their usage — every single user every single minute of every day,” she said. “And then on our side, we would need to know our expenses, and we would need to know when we incur those expenses at each point in the day.”
Councilmember Sean Elo-Rivera criticized anti-tax groups that support measures like Proposition 218, which state voters approved in 1996.
“Policies that are guised as protections for taxpayers are really just the opposite and make it more difficult for local governments to serve the public well,” Elo-Rivera said.
One reason the city could avoid raising its overall hike above the planned 14.5% in January is lower wholesale rates from the County Water Authority. The authority said last month that it expects 3% annual increases, instead of the typical near-double-digit increases of recent years.
But a larger factor was that plaintiffs in the class-action suit agreed to a $40 million city payout instead of the $118 million awarded by the appeals court.
Attorney Steven Tindall, who represented the plaintiffs in the case, said Monday that the lower payout was warranted based on variables and risks associated with the case, including a new state law governing payments of damages in such cases.
The state law, SB 1072, was prompted by rate cases like San Diego’s and restricts cash payouts in such cases in favor of giving parties who overpaid lower rates in the future.
Tindall said the law made the payout by the city of attorney fees complicated, prompting the $40 million settlement, which includes $13.3 million in attorney fees.
“The statute put a lot of uncertainty in the air,” Tindall said.
In his motion proposing the settlement to the court, Tindall made similar arguments.
“Despite the strengths of the case and the extraordinary success to date, there are real risks to continuing to litigate given the passage of new law,” he wrote. “Another trip through the appellate process and potential California Supreme Court review could last years.”
The settlement was reached in April after a mediation session. The council approved the deal in closed session last month but still must approve it in open session and then present it to a Superior Court judge for a final OK.
Postcards and emails will soon be sent to the 436,069 water customers believed to have been affected by the city’s illegal rate structure. More than 300,000 of them were previously notified during earlier phases of the 11-year-old case.
In court documents, Tindall wrote “plaintiff plans to allocate the net settlement fund on a proportional basis to all class members who were overcharged for water service based on the expert refund calculation approved by the Court of Appeal in this case.”
Any settlement money that goes unclaimed will be given to the local chapter of the Sierra Club for its water conservation efforts.
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