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Drought: Ratepayers challenge higher prices for water in San Juan Capistrano

The city of San Juan Capistrano, which helped pioneer conservation-minded water rates in Southern California, is now the site of a dispute around whether those rates are permissible. Residents have challenged the city's "tiered pricing" system in a lawsuit that's being closely watched by other water agencies around the state.

Pricing water to encourage people to save it has been on the rise ever since two Orange County water agencies implemented forms to tiered pricing following a bad drought in the late 1980s. Under tiered pricing, every customer is given an initial allotment of water at the same rate. Those who use more than that allotment are charged higher rates for their extra water.

The goal is to promote efficient use of water. 

San Juan Capistrano resident John Perry had enough of those rates a few years back.

Perry lives along a public golf course, with a view of the 18th green. But he says lawn around his condo is going brown.

“No matter what we do, we can’t keep up with the cost of service. The cost of service is killing us,” he says with a frown, as he shows off the weather-sensitive irrigation system the condo association uses along an alley wall. Last month, his condo association paid about $1000 just for a few patches of landscaping, some grass around the pool.

“The punishment may not fit the crime.”

John Perry is a retired assistant school superintendent, a 24-year resident of the city. Once an engineer, while he worked for schools he kept an eye on budgeting. He credits that background with spurring his interest in understanding his water bill.

A key component of water budgeting is tiered pricing. As the result of a study by the consulting firm Black & Veatch, in 2010 San Juan Capistrano boosted rates.

Perry responded. He put in low-flow toilets, restricted shower heads, and water-efficient appliances at his place. For his rose bushes, drip irrigation just around the condo.

He says it almost wasn’t enough. His Tier 1 allocation back then was 6 units of 100 cubic feet of water a month – about 150 gallons of water a day for him, his wife, and the plants just around his house.

Using water in Tier 2, the next level, cost 33% more. Tier 3 was 50% above that. Tier 4 was 83% over that.  The highest tier, he says, was 366% higher than the lowest.

Perry heard horror stories from his friends around town. And he started asking questions.

“The water budget is not a voluntary thing. It’s imposed. And if you don’t follow it, you get punished,” he says now. “I’m not buying the whole theory that you have to have water rates that punish water users. Because the punishment may not fit the crime.”

Two years ago, Perry and other ratepayers formed the Capistrano Taxpayers Association – and sued to block tiered pricing. He says the city can’t justify that collecting money under a tiered rate system is proportional to the costs of providing water.

The CTA challenged the city of San Juan Capistrano’s rates on Proposition 218 grounds, claiming that they constituted an illegal tax.

“What causes the water cost to go from Tier 1 up 33% to Tier 2?” he asks, not expecting an answer. “What costs are involved?”

A judge ruled that the city failed to demonstrate the answers to these questions. San Juan Capistrano has appealed the decision. The case comes back to court this fall.

“Water in California is just getting more and more scarce.”

Francie Kennedy joined the city of San Juan Capistrano as a conservation manager after developing an expertise in drought-tolerant landscaping. She’s been with the city for twenty-plus years.

City officials are withholding comment on the lawsuit, and the rates, while the case is open. But Kennedy says she gets questions all the time about what the case was actually about.

“It wasn’t about water being priced too high,” she says. “The lawsuit wasn’t about budget based tiered rates. It was really about that record about cost of service and rates.”

Kennedy points out that tiered rates have existed in San Juan Capistrano, about as long as she’s been there, because they send a useful price signal.

They continue “to be a tool to communicate prudent use,” she says. “Water in California is just getting more and more scarce.”

Kennedy says the city remains committed to using tiers for pricing, and to budgeting water. In the most recent rate structure, the highest rates are 50% above the lowest.  

“We really worked hard to make sure this was just and fair.”

“Coffee Chat” is a decade-old tradition at the Mission Grill, opposite Mission San Juan Capistrano. On a recent Friday morning, a few dozen people swing by to talk about drought, water policy in California, and the lawsuit. Or not talk.

“Because of the current lawsuit, I have been advised by legal counsel not to discuss this topic,” says Larry Kramer, a current city councilman, to nervous laughter. Kramer’s up for re-election this fall – just around the time the water rates case goes before an appellate panel.

Laura Freese hangs around after she finishes moderating the chat. Freese used to be on the city council herself, back when the rates were set that are the subject of the court case.

“We debated this over and over again, to make sure that we weren’t unjustly forcing somebody to pay money for something they weren’t using,” she says.   “For the little lady living on social security, we wanted to make sure she was taken care of. We really worked hard to make sure this was just and fair.”

Is tiered pricing the only way to conserve, I ask?

“No, I can’t say that,” she says.

Charge only what your costs are

The case is drawing attention from other water agencies. Two of the amicus briefs filed in the case support Perry and the Capistrano Taxpayer’s Association – including one from Mesa Water District, about a dozen miles north on the toll road.

Mesa maintains uniform pricing for water. “The cost for us to pump, treat, convey, maintain our system is consistent,” says Paul Schoenberger, general manager for Mesa. So our pricing is consistent from the first unit you use to the last because our costs are consistent.”

Mesa’s numbers belie a common knock on uniform pricing, that it doesn’t encourage people to save water: its residents, on average, use 91 gallons of water per person, per day.

In the San Juan Capistrano dispute, Mesa argues that the city should have only three tiers, because it has only three sources of water. The district points to Proposition 218 to argue that the only legal conservation-oriented water pricing sends an accurate signal to all users, not some.

Schoenberger says uniform pricing is the only way Mesa could go under state law. “For us it works, and it harmonizes the two concepts in the law, that first, water is a precious commodity and it needs to be conserved,” he says. “And secondly that government should take care to charge only what your costs actually are.”

A service, or a commodity?

The fight in San Juan Capistrano is part of a larger debate over whether water is a commodity – something to be bought, priced and sold – or a service that should only cost what it takes to provide.

Water rates consultant Sanjay Gaur works for agencies around southern California – including, these days, San Juan Capistrano. He says in California, water is always available – so it’s a service.

“Even if you’re not using it, you can use it any time you want,” he says. “And for those of us who think that it’s a commodity, I recommend that you got to a country where it’s not available, 24-7, 7 days a week and try to use it when it’s not around.”

For a self-described free market conservative like John Perry, the question is simple. 

“I’ve been doing research, ‘cause they keep asking me, if you’re against tiered water rates, what are you for?” he says. “I said, ‘I’m for cheap water.’”

If his group wins its rate battle in court, San Juan Capistrano may have to refund as much as 10 million dollars.