• Governor Signs Legislation Impacting Water Conservation Rates and Water, Sewer and Refuse Collection Rate Setting
  • October 27, 2008
  • Law Firm: Best Best & Krieger LLP - Riverside Office
  • California Governor Arnold Schwarzenegger recently signed AB 2882 and AB 3030 into law.  Both bills reaffirm long-standing practices employed by public agencies respecting rate setting for property-related fees and charges, but also establish new requirements respecting those practices. 

    Assembly Bill 2882 – Allocation-based Conservation Water Pricing

    As part of their water service rates, many public agencies have adopted tiered water rate structures.  Intended to establish an economic incentive to conserve water consumption, a tiered water rate structure generally will impose higher charges per unit of water as the level of consumption increases.  This rate structure for water service fees and charges was validated in Brydon v. East Bay Municipal Utility District (1994) 24 Cal. App. 4th 178, a case determined prior to the adoption of Article XIII D.  After the Supreme Court’s decision in Bighorn Desert-View Water Agency v. Virjil, 39 Cal. 4th 205 (2006), many public agencies questioned whether tiered water rates structured to accomplish water conservation complied with the substantive provisions of California Constitution article XIII D, section 6(b).  Effective January 1, 2009, AB 2882 reaffirms this long-standing rate setting practice.  AB 2882 will amend the California Water Code by adding new requirements for implementing tiered water rates to effectuate the Constitutional mandates of article X, section 2 – to prevent the waste and unreasonable use of water – and article XIII D, section 6(b) – to ensure that water service fees are proportionate to the cost of providing water service.  Allocation-based conservation water pricing is an alternative method of establishing tiered water service rates that harmonizes the constitutional mandates of article X, section 2 with those of article XIII D, section 6. 

    AB 2882 amends the California Water Code by adding Chapter 3.4 (commencing with section 370).  Water service rates using the optional pricing methodology set forth in AB 2882 must meet four criteria. 

    (1)  The agency’s billing must be based on metered water use. 

    (2)  The agency must establish a “basic use allocation” for each customer account.  The allocation provides a reasonable amount of water for each customer’s needs and property characteristics.  Factors to be considered in establishing such an allocation include, but are not limited to, the number of occupants, the type or classification of use, the size of the lot or irrigated area, and the local climate data for the billing period. 

    (3)  A “basic charge” is established as a component of the rate structure and is imposed for all water used within a customer’s basic use allocation.  The basic charge is a volumetric unit charge for the cost of water service other than fixed costs that are generally recovered through meter charges or other fixed charges. 

    (4)  A “conservation charge” is imposed on all increments of water use in excess of the basic use allocation to encourage water conservation and to pay the costs of conservation measures and overuse.  The conservation charge is a volumetric charge designed to encourage water conservation and recover the costs of conservation measures and overuse.  The increments may be fixed or may be determined on a percentage or any other basis, but should be structured in an ascending relationship to encourage water conservation and discourage inefficient use of water. 

    A public agency may use its discretion in designing an allocation-based conservation water pricing rate structure, provided the structure includes the four criteria referenced above.  The rate structure may also include a component, such as a meter charge or other fixed charge, designed to recover a public agency’s fixed costs of providing water service.  Additionally, a public agency may use one or more allocation-based conservation water pricing structures for any class of municipal or other service that the public agency provides.

    In order for water service rates using this pricing methodology to comply with the substantive provisions of California Constitution XIII D, section 6, the revenues derived from the fees must not exceed the reasonable cost of providing water service, including the basic costs and incremental costs.  Moreover, the revenues shall not exceed the proportional cost of providing water service attributable to a customer’s parcel, as determined by giving consideration to all of the following: (1) customer classes based on service characteristics, demand patterns, and other factors; (2) basic use allocations; (3) meter size; (4) metered volume of water consumed; and (5) the public agency’s discretionary allocation of incremental costs between and among the increments of water use subject to conservation charges. 

    A public agency establishing a schedule of charges and metered volumes for increments of water use subject to allocation-based conservation water pricing may also consider: (1) customer overuse characteristics, variations in water demand and consumption patterns, or other characteristics of overuse experienced by the public agency; and (2) the extent to which the pricing structure will be effective in minimizing or eliminating the need for other measures to curtail water overuse.  This method of water pricing may be used by a public agency at anytime and does not require a declaration of an emergency or other water shortage by the public agency.  The authority granted in Chapter 3.4 is in addition to any other authority granted to a public agency to use rate structure design to encourage and facilitate water conservation.

    Assembly Bill 3030 – Automatic Rate Adjustments for Water, Sewer, and Refuse Collection Service Fees and Charges

    Many public agencies which provide water, sewer or refuse collection services adopt multi-year rate increases for their service fees and charges.  In some instances, the rate increases are structured to include annual inflationary increases or authorize the agency to pass through increases in the cost of purchased wholesale water.  Effective January 1, 2009, AB 3030 reaffirms this practice and establishes certain requirements for implementing such inflationary increases and passing through the increased cost of purchased wholesale water.

    California Constitution article XIII D, section 6(a)(1) requires that a public agency proposing to impose a new or increase an existing property-related fee or charge must provide written notice by mail to the record owner of each parcel upon which the fee or charge will be imposed.  The notice must contain certain information respecting the proposed fee or charge and the date, time and location the public agency will conduct its public hearing on the proposed fee or charge.  Article XIII D, section 6(a)(2) further requires that the public hearing be held not less than 45 days after the mailing of the notice.  If at the conclusion of the public hearing the public agency receives written protests against the imposition of the proposed fee or charge from a majority of the affected property owners, the fee or charge may not be imposed. 

    AB 3030 adds section 53756 to the California Government Code.  In adopting an increase to a property-related fee or charge pursuant to California Constitution article XIII D, section 6, California Government Code section 53756 provides that a public agency may adopt a schedule of fees or charges authorizing automatic adjustments that pass through increases in wholesale charges for water or adjustments for inflation, if it complies with all of the following:

    (a)  The schedule of fees or charges for a property-related service may not exceed five years.

    (b)  The schedule of fees or charges may include a schedule of adjustments, including a clearly defined formula for adjusting for inflation, provided the property-related fee or charge, as adjusted for inflation, does not exceed the cost of providing the service.

    (c)  If an agency purchases wholesale water from a public agency, the schedule of fees or charges may provide for automatic adjustments that pass through the adopted increases or decreases in the wholesale water charges established by the other agency.

    (d)  An agency is not required to follow the notice provisions of California Constitution article XIII D, section 6 when implementing any adjustment made pursuant to a schedule of fees or charges as authorized pursuant to California Government Code section 53756.  However, it must provide written notice of the adjustment not less than 30 days prior to the effective date of the adjustment.  Such notice may be given as provided in California Government Code section 53755(a), by including it in the agency's regular billing statement for the fee or charge or by any other mailing by the agency to the address to which the agency customarily mails the billing statement for the fee or charge.  It is recommended that any agency that adopted a schedule of fees or charges prior to the effective date of AB 3030, which provided for inflationary adjustments or pass through charges, also follow these notice procedures for any future adjustments.