Headlines get it Wrong: Court Ruling Does NOT Stop Tiered Pricing

Headline writers across California are misinterpreting the April 20, 2015 Appeals Court decision to invalidate San Juan Capistrano’s water budget water rates. It is easy to confuse the tiers of a traditional tiered rate, where the user pays more per unit after their consumption exceeds a defined threshold with budget-based rates.

The Court clearly said they were not ruling out tiered rates. They pointed out that San Juan Capistrano’s budget-based rates did not tie the water rate increase between tiers to cost of service. Budget-based allocations look like tiered rates, because unit prices go up, but the underlying assumption in where the tiers are set and how much the price increases is all the difference, and this is what the court ruling addresses.

Budget-based rates allocate an amount of water to each customer that they’ll pay a lower rate for. Some of this water is estimated to be for indoor use, and the rest for outdoor water use. The hallmark of a budget-based rate is that if you have a large lot, and irrigate turfgrass, you get more of this inexpensive water than someone who has a small lot, or who irrigates a low-water use garden.

A traditional tiered rate, which the court explicitly said it was not ruling against, charges everyone in a customer class the same amount for each tier —  the point being that the rates are tied to the extra costs of delivering more water, regardless of what you use it for: turfgrass, large lot, koi pond, swimming pool, and so on. The customer’s lot size and landscape choices don’t matter.

The results of a traditional tiered water rate are that customers with larger lots or wasteful water practices pay more, because it costs the utility  more for bigger pipes and pumps, higher energy and maintenance costs to deliver more water, than it would if all the customers were conserving, and the utility could use smaller pipes, smaller pumps, and run everything at lower pressure, with lower energy and maintenance costs.

So high water users should pay more – they cost the utility more to serve. But the court said to San Juan Capistrano – you have to show how the rate structure ties to your costs.

So please, mainstream media, calm down, and quit telling everyone that the courts have delivered a blow against conservation. What they really delivered a blow against was allocation-based rates, where the customer is given more cheap water for watering a large lot, when their neighbors with smaller lots, get less of that cheap water.

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