On July 14th, a class action lawsuit was filed on behalf of a resident of the Otay Water District against the Otay Water District, San Diego County Water Authority, and the Metropolitan Water District of Southern California challenging the constitutionality of the defendants’ water rate structure. The suit cites the April 20th decision by the Fourth Appellate District in the Court of Appeal of California in Capistrano Taxpayers Association v. City of San Juan Capistrano holding that an increased tiered-pricing of water service must reflect the cost of service. The discussion below presents the complaints for each defendant and analyzes the issues within the context of the decision by the Fourth Appellate District. (For more on Appellate Court decision, see “CA Appellate Court Holds That Tiered Pricing Must Reflect Cost-of-Service,” JOW May 2015).
Otay Water District
Like the City of San Juan Capistrano, the Otay Water District established a four-tier rate structure for residential customers (see table). In the case of San Juan Capistrano, the City did not calculate the incremental cost of providing water at the level of usage represented in each tier. In oral argument, San Juan Capistrano admitted that it was using revenues from the higher tiers to subsidize below-cost rates for the bottom tier.
Residential Rate Structure of Otay Water District and San Juan Capistrano
| Otay Water District | San Juan Capistrano | ||
| Usage* | Price | Usage* | Price |
| Up to 5 ccf | $1.95/ccf | Up to 6 ccf | $2.47/ccf |
| 6 ccf to 10 ccf | $3.04/ccf | 7 ccf to 17 ccf | $3.29/ccf |
| 11 ccf to 22 ccf | $3.95/ccf | 18 ccf to 34 ccf | $4.94/ccf |
| 23 ccf+ | $6.08/ccf | Over 34 ccf | $9.06/ccf |
* ccf = hundred cubic feet = 748 gallons
Otay’s rate structure is comparable to San Juan Capistrano’s generally, if not in detail. Therefore, the question is whether Otay can meet the road map found in the Fourth Appellate Court decision. Define tiers based on the level of service. Link the development and use of water supply sources to meet the increment of demands within the tiers. By defining the operational policy of how water sources are used to meet “demand increments,” cost-of-service water rates can be established for services under the various tiers. San Juan Capistrano lacked information to meet the road map. Look for the litigation to examine Otay’s factual record.
San Diego County Water Authority
The Water Authority does not have a tiered water rate structure. Nevertheless, the compliant argues that the Water Authority does not pass constitutional muster because it levies fixed charges and capacity charges. The Fourth Appellate Court decision focused on tiered water rates and not the fixed charges levied by San Juan Capistrano. Therefore, the plaintiff will be plowing new ground on water agency rate structures.
Metropolitan Water District of Southern California
The complaint argues that Metropolitan’s Tier 1 and Tier 2 rate structure does not reflect the cost of service. This must be news to Metropolitan as it has quantified its tiered rates on the cost of water supplies from programs to meet a historical level of water demand and the cost of water supplies from newer programs to meet increased water demands and encourage efficient use of local resources.
Final Thought
The class action lawyers representing the plaintiff, Mark Corziahr, lumped disparate defendants under one legal theory. Otay Water District is the defendant most similar to San Juan Capistrano. Will Otay have the evidence that San Juan lacked to show that its tiered water rates do reflect the cost of service? The Water Authority does not have a tiered water rate structure. Therefore, will the plaintiff be successful in going into a territory not explored by the Fourth Appellate Court—fixed charges. Metropolitan does have a tiered water rate structure. However, since its inception of Tier 1 and Tier 2 water pricing over a decade ago, Metropolitan has quantified its rate structure based on the cost of water sources needed to meet Tier 1 water demands versus Tier 2 water demands.
Written by Rodney T. Smith, Ph.D.