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Water rates: just the facts

By: Matthew Brower
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The latest buzz in town is circulating around the city’s water rates. Due to a recent suit challenging the city’s residential water rates, concerns have been raised about the legality of the rates, possible credits, water fund reserves and other important water-related concerns. 

Providing accurate, detailed information to water customers is a top priority of the city of Lincoln. To this end, the city is eager to share information on the recent suit and mediated settlement in order to provide clarity and full transparency to its rate payers.

The city’s current tiered water rates were adopted in 2013. The tiered rates were a first for the city encompassing ascending tiers for water usage.  Residential rates with a ¾- inch meter, for example, have five tiers based on usage ranging from 0 to 5,000 gallons used per month for tier 1 to 35,000 gallons and above for tier 5.  A suit was filed against the city in April 2017, challenging the validity of the city’s residential water tiers four and five, and the rates in excess of the cost of service, and the suit sought refunds for the one year allowable statute of limitations.  

Proposition 218, a statewide ballot measure approved in 1996, and a subsequent court ruling in 2015 (called San Juan) addressed the validity of tiered water rates and the San Juan case held that the water rate associated with each tier may not exceed the actual cost of service.  Essentially, the suit contended that the city’s water rate for tiers four and five and for usage over 21,000 gallons per month exceeded the actual cost of providing the service. 

The city settled the suit out of court and agreed to a mediated settlement.  The city agreed that the rates it adopted for usage above 21,000 gallons per month exceeded the actual cost of service and agreed to resolve the suit and to refund payments for the one year period claimed. The settlement impacts only those residential water accounts that purchased water in tiers four and five, or used greater than 21,000 gallons going back to February 2016. These accounts can expect to receive a refund or credit within 90 days. The total number of impacted accounts is 5,324, which represents approximately 30 percent of the city’s 17,442 residential water accounts.  Tiers one, two and the portion of tier three less than 21,000 gallons per month, encompassing nearly 70 percent of residential water accounts, were not impacted and remain valid.

Although the lawsuit only addressed residential rates, the city is examining and the City Council will address rates for non-residential.

Many have claimed the city knowingly adopted rates that were not compliant with Proposition 218. This is not true as the city believed the rates it adopted were lawful. Many jurisdictions were adopting conservation-based rates at this time in the face of the historic drought.  When the city adopted the water rates in 2013, the city relied on a reputable water rate consultant and legal advice to affirm compliance with Proposition 218.  The city was also required to undertake a comprehensive rate study, send notices to all water customers, and to hold a public hearing affording all customers a voice in the rate-making process. The city complied with all these provisions. Although the city did receive numerous letters advocating against the proposed rates, ultimately the council has the responsibility to review all findings and make the best, informed decision they can at the time. 

Doesn’t the city have a duty to issue water refunds back to January 2014 when the rates became effective?  The facts are, the city has no legal duty to provide refunds in excess of the one year statute of limitations.  The state legislature has adopted strict time frames for bringing legal action on claims and that is the one year period claimed in the lawsuit.

 

All water revenues collected by the city can only be used to operate and improve the city’s water system on behalf of its customers. These funds cannot be used for any other purpose. If the city refunds all rates collected in excess of the one year statute of limitations period as has been suggested, approximately $3 to $5M, it would likely result in refunding revenue earmarked for critical water system improvements required for safe and reliable water delivery.  Water utilities are capital intensive and system repairs and maintenance costs are extremely high.  The city’s fiscal year 2017/2018 capital budget earmarks, for example, approximately $6M to improving the city’s water distribution system; fiscal year 2018/2019 earmarks approximately $5M, and subsequent years earmarks approximately $4M annually.  Should the city refund the amount being requested, it is reasonable to conclude that either 1) system improvements would have to be delayed or cancelled or 2) rates would have to be increased to cover the cost of system improvements.

 

The city recently completed, with the assistance of a nine-member citizen’s committee, a new water rate study.  Proposed is a single, uniform tiered rate for the entire city.  Jan. 9, 2018 is the date of the proposed public hearing.  Information about the proposed new rates, a fact sheet on refunds and mediated settlement requirements can be found on the city’s website (LincolnCA.gov).  The city values transparency and seeks to communicate the facts on this complicated issue and urges its residents to read the information on the website and to ask us questions.

Matthew Brower is the Lincoln city manager.