Is Rate Restructuring In California Unconstitutional?

Water conservation and a rise in supply costs compelled the Santa Barbara City Council to hike water rates in August.

“With customers using 35 percent less water than they used to, sales revenues are way down. At the same time, drought-related costs have gone up: $55 million to build [a] desalination plant and millions more to buy the supplemental water supplies needed to keep Lake Cachuma from going bone dry,” the Santa Barbara Independent reported.

The city was losing about $500,000 per year under the old rates.

But for California utilities under revenue pressure due to conservation, there may be help on the way. Some analysts say a policy shift loosening conservation rules is already showing up on monthly tallies of water consumption in the state.

“According to the State Water Resources Control Board, urban customers reduced water use by 21.5 percent in June, compared to the benchmark year of 2013. That’s down from 27.5 percent savings a year ago, when statewide mandatory controls were in place. Savings were down even more compared to May of this year,” KQED reported.

In Santa Barbara, the rate hike represents a significant rise in bills for many water users.

“Water rates in the City of Santa Barbara are going up again, this time by almost $30 a month for moderate water users ​— ​defined as those who use roughly 7,500 gallons a month,” the report said. “For low water users ​— ​2,900 gallons a month ​— ​bills will be bumped by $2.45 a month. But for heavy users ​— ​15,000 gallons a month or more ​— ​rates will increase by $78 a month.”

In Santa Barbara, rate hike opponents say that the city’s charging scheme does not comply with the California Constitution of 1996. Proposition 218, which amended the constitution, limits how rate structures can be used to promote conservation goals. An editorial in the Independent argued that the rate hike is unconstitutional because of the way it places costs onto heavy water users. The opinion writer argued that education, technical support, and recognition for consumers can be used to promote conservation instead of rate structure.

“The clear intent [of the rate structure is] to ‘punish’ high users by making them pay for 100 percent of the conservation costs, when in reality many of the high users have reduced consumption in excess of the city’s conservation goal. Once again, the city is not basing the surcharge on proportional cost to each user,” the editorial said.

Proponents of the rate hike say the structures are legal and necessary.

Water utility revenue was a factor in California’s decision to relax strict conservation rules.

Regulators saw that maintaining stringent water-usage cuts would bring financial consequences to utilities, The Sacramento Bee reported. Urban districts stood to lose $673 million in revenue from water sales if the restrictions continued into the fall, the report said, citing an analysis commissioned by the State Water Resources Control Board.

To read more about rate structuring visit Water Online’s Funding Solutions Center.