New Legislation Provides Clarity for Tiered Water Rates Subject to Proposition 218
December 2024
Number 51
Since Proposition 218 was approved by the voters in 1996 and the Legislature enacted the Proposition 218 Omnibus Implementation Act a year later, local agencies have been required to comply with various public notice, public hearing, and fee justification requirements when imposing new or increased property-related fees (e.g., water service fees, sewer service fees, and refuse collection fees) and assessments.
Tiered water rate structures have been successfully challenged in several cases over the years and many local agencies struggle with implementing water rates that adequately and fairly recover the agency’s costs of providing service to customers. In some instances, local agencies have been required to refund ratepayers amounts found to have been overcharged due to lack of evidence showing the justification of the proportional cost of service to various parcels served by the agency.
The recent enactment of three new bills—Assembly Bill (AB) 1827, AB 2257, and Senate Bill (SB) 1072—each of which will go into effect on January 1, 2025, should provide clarity for agencies wishing to implement tiered water rates and help avoid potentially costly legal challenges.
AB 1827
AB 1827 is in response to the California Court of Appeal decision in Coziahr v. Otay Water District (2024) 103 Cal.App.5th 785, wherein the court rejected the district’s tiered water rates after finding the rate structure included water conservation as a factor rather than the rates being based only on the district’s actual cost of providing service to high use or peak demand use parcels.
AB 1827 amends the Proposition 218 Omnibus Implementation Act, adding Government Code section 53750.6, which does the following:
AB 2257
This bill is in response to cases holding that submission of a written protest to an agency’s proposed new or increased fee before the fee is approved is not a prerequisite to filing a legal challenge to the approved fee. In Plantier v. Ramona Municipal Water District (2019) 7 Cal.5th 372, the California Supreme Court held that Proposition 218 fee protest hearings are not an adequate opportunity for feepayers to challenge the constitutionality of a proposed fee. Under Plantier and similar cases, courts have not imposed an administrative remedy exhaustion requirement on plaintiffs who challenge a fee after it is approved.
AB 2257 provides that a local agency may choose to implement an administrative remedy procedure which must be exhausted by the ratepayer prior to filing a lawsuit. To do so, a local agency must comply with additional requirements for public notice and outreach during the fee setting process beyond the minimum requirements of Proposition 218.
The newly added Government Code section 53759.1 describes the additional notices, public outreach, written objection requirements for challenging a proposed fee, and an agency’s written response requirements to written objections before the agency approves the fee. If an agency satisfies these additional alternative requirements, the agency will be able to assert a failure to exhaust administrative remedies defense against any plaintiff who failed to timely submit a written objection before the agency’s fee approval decision. Additionally, in any court proceeding challenging the approved fee, the court’s review will be limited to the record of proceedings before the local agency, and evidence outside the record is limited only to certain circumstances specified in Government Code section 53759.2.
SB 1072
Finally, SB 1072 adds Government Code section 53758.5 to the Proposition 218 Omnibus Implementation Act, providing that local agencies are not required to refund individual ratepayers if a court determines a property-related fee or charge violates Proposition 218.
Instead of individual refunds to ratepayers, an agency must credit the amount of fees determined to have been collected in violation of Proposition 218 against the amount of revenues required by the agency to provide the service the next time the agency imposes or increases its fees. This credit procedure is intended to lower the fees or offset some of the fee increase the next time fees are increased by the agency. Importantly, this provision does not apply to claims for refunds based on billing errors, which may still be individually refunded.
Takeaways
These new laws should provide some clarity regarding tiered water rates and help local agencies avoid legal challenges and the risks of refunds to ratepayers.
If you have any questions about AB 1827, AB 2257, or SB 1072, or to discuss procedures for adopted or amending fees and assessments, please contact the authors of this Client News Brief or any attorney at one of our eight offices located statewide. You can also subscribe to our podcasts, follow us on Facebook, Twitter and LinkedIn or download our mobile app.
Number 51
Since Proposition 218 was approved by the voters in 1996 and the Legislature enacted the Proposition 218 Omnibus Implementation Act a year later, local agencies have been required to comply with various public notice, public hearing, and fee justification requirements when imposing new or increased property-related fees (e.g., water service fees, sewer service fees, and refuse collection fees) and assessments.
Tiered water rate structures have been successfully challenged in several cases over the years and many local agencies struggle with implementing water rates that adequately and fairly recover the agency’s costs of providing service to customers. In some instances, local agencies have been required to refund ratepayers amounts found to have been overcharged due to lack of evidence showing the justification of the proportional cost of service to various parcels served by the agency.
The recent enactment of three new bills—Assembly Bill (AB) 1827, AB 2257, and Senate Bill (SB) 1072—each of which will go into effect on January 1, 2025, should provide clarity for agencies wishing to implement tiered water rates and help avoid potentially costly legal challenges.
AB 1827
AB 1827 is in response to the California Court of Appeal decision in Coziahr v. Otay Water District (2024) 103 Cal.App.5th 785, wherein the court rejected the district’s tiered water rates after finding the rate structure included water conservation as a factor rather than the rates being based only on the district’s actual cost of providing service to high use or peak demand use parcels.
AB 1827 amends the Proposition 218 Omnibus Implementation Act, adding Government Code section 53750.6, which does the following:
- Authorizes fees for property-related water service to include the incrementally higher costs of water service due to the following costs:
- The higher water usage demand of parcels.
- The maximum potential water use.
- Projected peak water usage.
- Authorizes the incrementally higher costs of water service associated with any of the above three specified factors to be allocated to ratepayers using any method that “reasonably assesses the water services provider’s costs of serving those parcels that are increasing potential water usage demand, maximum potential water use, or projected peak usage.”
AB 2257
This bill is in response to cases holding that submission of a written protest to an agency’s proposed new or increased fee before the fee is approved is not a prerequisite to filing a legal challenge to the approved fee. In Plantier v. Ramona Municipal Water District (2019) 7 Cal.5th 372, the California Supreme Court held that Proposition 218 fee protest hearings are not an adequate opportunity for feepayers to challenge the constitutionality of a proposed fee. Under Plantier and similar cases, courts have not imposed an administrative remedy exhaustion requirement on plaintiffs who challenge a fee after it is approved.
AB 2257 provides that a local agency may choose to implement an administrative remedy procedure which must be exhausted by the ratepayer prior to filing a lawsuit. To do so, a local agency must comply with additional requirements for public notice and outreach during the fee setting process beyond the minimum requirements of Proposition 218.
The newly added Government Code section 53759.1 describes the additional notices, public outreach, written objection requirements for challenging a proposed fee, and an agency’s written response requirements to written objections before the agency approves the fee. If an agency satisfies these additional alternative requirements, the agency will be able to assert a failure to exhaust administrative remedies defense against any plaintiff who failed to timely submit a written objection before the agency’s fee approval decision. Additionally, in any court proceeding challenging the approved fee, the court’s review will be limited to the record of proceedings before the local agency, and evidence outside the record is limited only to certain circumstances specified in Government Code section 53759.2.
SB 1072
Finally, SB 1072 adds Government Code section 53758.5 to the Proposition 218 Omnibus Implementation Act, providing that local agencies are not required to refund individual ratepayers if a court determines a property-related fee or charge violates Proposition 218.
Instead of individual refunds to ratepayers, an agency must credit the amount of fees determined to have been collected in violation of Proposition 218 against the amount of revenues required by the agency to provide the service the next time the agency imposes or increases its fees. This credit procedure is intended to lower the fees or offset some of the fee increase the next time fees are increased by the agency. Importantly, this provision does not apply to claims for refunds based on billing errors, which may still be individually refunded.
Takeaways
- Local agencies considering tiered water rates now have some clarity regarding the impacts and costs on the water system that may justify assessing incrementally higher costs of water service.
- Local agencies may choose to comply with additional requirements for an exhaustion of administrative remedies procedure as described in Government Code section 53759.1. While not required, an agency may wish to do so if it anticipates opposition or a potential legal challenge to proposed fees.
- Lastly, going forward, agencies should know that they will not have to issue individual refunds if fees are imposed in violation of Proposition 218.
These new laws should provide some clarity regarding tiered water rates and help local agencies avoid legal challenges and the risks of refunds to ratepayers.
If you have any questions about AB 1827, AB 2257, or SB 1072, or to discuss procedures for adopted or amending fees and assessments, please contact the authors of this Client News Brief or any attorney at one of our eight offices located statewide. You can also subscribe to our podcasts, follow us on Facebook, Twitter and LinkedIn or download our mobile app.
As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.
