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The City Council tomorrow will consider a tentative settlement with a consumer advocate who sued the city of San Diego on allegations that residential sewer users were subsidizing large businesses’ wastewater bills.

After claiming that single-family residences were overcharged by about $200 million over a 10-year period beginning in 1994, lead plaintiff Michael Shames has agreed to end the lawsuit for $40 million.

“It shouldn’t have taken a lawsuit to keep ratepayer funds safe,” Mayor Jerry Sanders said at a press conference Monday.

The announcement of the settlement comes on the eve the release of Sanders’ proposal to increase water and sewer rates to pay for major, court-ordered capital improvements to both city-run systems. Details on the rate hikes are expected to be laid out at a press conference Tuesday.

According to the settlement, $35 million would be refunded to the residential customers of the system, 12.5 percent of the settlement – or $5 million – would be awarded to the attorneys for the class-action plaintiffs, and $20,000 will be set aside for a nonprofit group to serve as a watchdog over the city’s sewer dealings. The State Water Control Resources Board and a Superior Court judge would also have to approve the terms of the settlement.

The city contends that current sewer customers who are entitled to a refund will be credited on their bills, pending the proposed rate increases that are slated to become effective in May. For former customers who have left the system, a notice of their refund would be published in The San Diego Union-Tribune. Shames said he would launch a website to help corral those customers in the next few days.

In addition, Shames said he will help select the nonprofit group, which would work much like the Utility Consumer Action Network, the organization that he founded to serve as an independent watchdog for San Diego Gas & Electric consumers. Primarily, the organization would be charged with hiring and monitoring outside experts to assess Metropolitan Wastewater’s business practices.

“From my point of view, the most important part of this settlement was the independent evaluator,” Shames said. “It’s far more important to make sure this never happens again.”

The group will be able to insert notices to residential customers soliciting contributions for their work, similar to how UCAN got its start by rallying for volunteer donations in SDG&E bills.

Shames said a nonprofit could qualify if it has an annual operating budget of $250,000, is experienced in monitoring the finances of utilities, has no conflicts of interest with the city, and will adhere to audits of its expenditures.

Shames said he would prefer that UCAN not serve that role, but did not rule it out.

Correction: The original version of this post erroneously reported that plaintiffs’ attorneys were to receive $12.5 million of the $40 million settlement. It should have read that the attorneys would receive 12.5 percent, or $5 million, of the settlement. Residential ratepayers will receive a net refund of $35 million, not $27.5 million as was originally reported. We regret the error.

EVAN McLAUGHLIN

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