In a decision that could raise obstacles to water conservation efforts across the state, a Southern California appeals court has rejected the city of San Juan Capistrano's adoption of tiered rates to encourage customers to use less water.

Ruling on a case initiated by taxpayers, a three-judge 4th District Court of Appeal found that the city's water-rate scheme violated provisions of Proposition 218, a constitutional amendment passed in 1996 to limit service fees imposed by local agencies.

The court's ruling drew an angry response from Gov. Jerry Brown.

"The practical effect of the court’s decision is to put a straitjacket on local government at a time when maximum flexibility is needed," Brown said in a statement. "My policy is and will continue to be: Employ every method possible to ensure water is conserved across California.”

Proposition 218 Fallout

KQED's Tara Siler talks to Tim Quinn, executive director of the Association of California Water Agencies, about the potential statewide impact of Monday's appeal court opinion.

Brown added that state lawyers are studying the court's opinion.

The 4th District panel's reasoning rests on a series of state court rulings that have held that Prop. 218 requires water rates to reflect the actual cost of providing service to individual properties.

The 4th District panel's ruling Monday (embedded below) found that San Juan Capistrano violated Prop. 218 by imposing tiered water rates. Customers using relatively small volumes of water would pay a low price, but "very excessive" users would pay a price 3½ times higher -- without regard to how much it actually cost to provide water to any of its users.

Lawyers for San Juan Capistrano argued:

• That calculating the difference in cost of providing water for various water users was unduly complex and in any case not required by Prop. 218.
• That it's obliged to promote conservation by another provision of the state constitution -- Article X, Section 2, which requires in part that "the waste or unreasonable use or unreasonable method of use of water be prevented."
• That the city also argued that its tiered rate structure represented a penalty system that is exempt from Prop. 218.

The appeals panel found that while tiered water rates themselves don't violate Proposition 218, they must reflect the additional cost of providing higher volumes of water to some customers. The court's decision, written by Associate Justice William Bedsworth, insisted the city should be able to calculate the additional costs of providing water to heavy users that might justify higher rates.

"Nothing in our record tells us why, for example, [officials] could not figure out the costs of given usage levels that require [San Juan Capistrano] City Water to tap more expensive supplies, and then bill users in those tiers accordingly. 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. As the court pointed out in Howard Jarvis Taxpayers Ass'n v. City of Fresno ... the calculations required by Proposition 218 may be “complex,” but “such a process is now required by the California Constitution.”

The court did hand San Juan Capistrano one victory, ruling that it is entitled to charge all ratepayers for a water-recycling plant, even though not all of them get supplies from the facility.

And the court almost ruefully acknowledged that its ruling comes; 1) in the midst of one of the state's worst droughts and; 2) against the background of Southern California's continuing battle to secure water supplies.

Southern California is a “semi-desert with a desert heart.” Visionary engineers and scientists have done a remarkable job of making our home habitable, and too many of us south of the Tehachapis never give a thought to its remarkable reclamation. In his brilliant – if opinionated – classic "Cadillac Desert," the late Marc Reisner laments how little appreciation there is of “how difficult it will be just to hang on to the beachhead they have made.”

In this case we deal with parties who have an acute appreciation of how tenuous the beachhead is, and how desperately we all must fight to protect it. But they disagree about what steps are allowable – or required – to accomplish that task. We are called upon to determine not what is the right – or even the more reasonable – approach to the beachhead’s preservation, but what is the one chosen by the state’s voters.

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 Orange County Register recounts the origins of the lawsuit that led to Monday's ruling:

The lawsuit in San Juan Capistrano was brought in August 2012 by Jim Reardon, an aerospace executive and elected member of the Capistrano Unified School District Board of Trustees, and John Perry, a retired schools administrator who severed ties with the case after being appointed to the San Juan Capistrano City Council in February. They’d long complained of the tiers, which they believe were implemented to help pay for the city’s expensive groundwater recovery plant, for which it still owes about $40 million.

And the Los Angeles Times provides some further context on tiered water rates and their potential role in conservation:

The Los Angeles Department of Water and Power currently uses a two-tier rate structure, but agency officials have said they are preparing to roll out a revised system that would employ four tiers and that would make high water use even more costly than it is now.

Experts say 66 percent to 80 percent of California water providers use some type of tiered rates. A 2014 UC Riverside study estimated that tiered rate structures similar to the one used in San Juan Capistrano reduce water use over time by up to 15%.

An author of the study, Ken Baerenklau, said the effect was greatest on the heaviest water-users. In a previous interview with The Times, he said that if the court found in favor of the plaintiffs, as it did Monday, the decision “would be a big deal" because it would "stand in the face of significant momentum" toward tiered rates.