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Thursday, Oct. 15, 2009 | Someone at City Hall must really like San Diego’s existing water rate structure.

San Diego water officials have offered numerous reasons this year explaining why it isn’t practical to adopt new rates that could boost conservation and penalize waste.

They’ve praised the concept, currently used in the Irvine Ranch Water District in Orange County. Then they’ve misrepresented key facts about it. Now, as a supportive City Council weighs it as a response to the current water shortage, those same city water officials have a new reason for their resistance: Lawyers would have a field day.

The city would get sued.

The concept under evaluation is called a “water-budget based rate.” It sets a monthly limit — a budget — for how much water homes and businesses should use based on site-specific factors such as property size and number of residents. Go over budget and you pay more for each gallon than someone who stays at or under budget.

Several water lawyers said such plans are legal, again casting doubt on the officials’ latest explanation. Michael Cowett, a water law attorney who represents a local agency that recently adopted such a plan, said he was “very surprised” the city would claim it was illegal.

The concept has long been used in electricity pricing. Like a homeowner who keeps the air conditioning off in summer, someone who tears out their lawn gets rewarded with lower bills. Where it’s been used, officials have lauded it for helping to spur water conservation — without the threat of neighbors tattling if you irrigate on the wrong day.

While a majority of City Council members say they want to implement such a plan, city water officials and the Mayor’s Office do not. But they’ve been unable to offer a solid reason for their opposition.

City water officials have acknowledged the concept’s benefits, but fought its implementation. Jim Barrett, the Water Department’s director, warned the council last week that it faced “a significant legal challenge potential” if it adopts budget-based rates.

“It hasn’t been challenged in the courts,” Barrett told the council. “We have to be careful of the risks we assume when we put a rate in place.”

Other water districts using budgets believe their legal foundation is sound. Agencies are increasingly turning to them. Irvine Ranch has used budgets for nearly two decades. Two local agencies adopted them this year: the Padre Dam Municipal Water District, which serves 125,000 people in El Cajon and Santee, and the Eastern Municipal Water District, which has 125,000 customers in Riverside County.

The state Legislature has endorsed them, too, approving a 2008 law that authorizes water agencies to adopt budget-based rates.

Cowett, who serves as Padre Dam’s general counsel, said the legislation blessed an already-legal practice and gave water districts a step-by-step methodology.

“To overturn it, a court would have to reject the specific direction of the Legislature,” Cowett said. “I just don’t think that’s in the cards. That’s the reason why it hasn’t been challenged. It’s too clear.”

Irvine Ranch, which serves 330,000 people in Irvine and parts of Tustin and Newport Beach, adopted budgets during the major drought that afflicted Southern California in the early 1990s. Those who go above their allocation pay rates as much as eight times higher as those who stay on target.

While Irvine Ranch is frequently held up as a model for other agencies, San Diego water officials consistently misrepresented Irvine’s approach, claiming it took the district more than a decade to implement budgets. It didn’t. It took a year.

Michael Shames, executive director of the Utility Consumers’ Action Network, which successfully sued San Diego in 2004 for overcharging on sewer bills, said Barrett’s claim about water budgets being illegal has “no credence.”

“It’s a legal fiction that exists solely within the mind of Jim Barrett and his advisors — his fellow paranoids,” Shames said.

The city can strike one potential litigant off its list. Shames promised that UCAN wouldn’t sue if San Diego adopted water budgets that complied with the law.

“We’d be cheering them,” Shames said. “It’d be very difficult for us to take any action, because it’s what we’re espousing.”

Alex Roth, spokesman for Mayor Jerry Sanders, said the Water Department is concerned that water budget-based rates violate the voter-approved Proposition 218. The 1996 initiative requires revenues from water rate increases to be used exclusively to fund water operations. For example, San Diego couldn’t raise water rates and use the money to pay for a new library.

The worry: Charging some customers more than the true cost of a gallon of water may not comply with Prop. 218. Agencies with budgets use extra money from excessive use to fund conservation programs.

“It is a gray area,” Roth said. “Given that there is no clear case law, it’s important to tread lightly and really delve into all the different legal issues before you take the plunge.”

The City Attorney’s Office is studying the issue, Roth said, but hasn’t produced a formal opinion. A city attorney spokeswoman said the office had written a confidential memo analyzing the issue in April but wouldn’t comment on its findings.

Other attorneys who’ve analyzed the concept say they believe budget-based rates are legal and comply with Prop. 218 because they invest that extra revenue in water conservation — ensuring customers have enough water in the future.

While Prop. 218 prohibits agencies from funding anything other than water operations, Dan Hentschke, the San Diego County Water Authority’s general counsel, said that doesn’t just include the costs of getting water each year. Funding conservation programs — making sure there’s enough so taps don’t run dry in future years — is a legitimate expense, he said.

Hentschke said water budgets were legal under Prop. 218 even before the state Legislature approved the 2008 law. He has given that advice to the League of California Cities and the Association of California Water Agencies.

“I think a water budget-based rate structure is consistent with Proposition 218,” Hentschke said. “If I use more than I should be using, should I pay more incrementally? Yes, it’s probably fair.”

The state Legislature addressed water budget-based rates at the behest of Irvine Ranch, approving Assembly Bill 2882, which outlines step-by-step how water agencies can use budgets. Irvine Ranch is confident its rate structure is legal, a spokeswoman said, in part because the state Constitution mandates that water not be wasted in California.

“It is not uncommon for legislation to provide interpretation and clarification in areas where the constitutional provisions themselves and judicial interpretation have not provided that guidance,” said Beth Beeman, the Irvine Ranch spokeswoman. “Our hope was that AB 2882 would provide some clarity for water districts contemplating water rate structures similar to [ours].”

Hentschke and another water lawyer said the new law was likely unnecessary because water budgets were already legal. Because they draw their governing power from the Legislature, “many water district lawyers are extremely conservative and want to have a statute for what they do,” he said.

The Legislature can’t pass a law that amends Prop. 218 because it’s a voter-approved ballot initiative. But that wasn’t its intent, said Cowett, who’s also helping the Rancho California Water District in Temecula adopt budget-based rates. It outlines one method of pricing water consistent with Prop. 218, he said.

Cowett said he believed agencies could even adopt water budgets solely for residential customers and not for businesses — something viewed as harder to implement — but noted that agencies would have to ensure rates treated both classes fairly.

City water officials and the mayor, though, have resisted at a time when the city’s dealing with its first mandatory water-use restrictions in two decades.

Mary Ann Dickinson, a former Metropolitan Water District conservation official who now runs the Chicago-based Alliance for Water Efficiency, said their opposition is typical of water agencies across the country.

“They want to do it the way they’ve always done it,” she said. “They are averse to change.”

Shames offered another explanation. He said city water officials and the mayor likely don’t want to deal with the political fallout from upsetting heavy water users.

“People who use a lot of water have friends in high places,” Shames said. “And sometimes they’re on the City Council themselves. I don’t think they’re eager to ruffle the feathers of conspicuously consumptive water users.

“It doesn’t make sense otherwise. It can’t be fear of lawsuits.”

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