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Rancho Santa Fe Association Files Lawsuit Against Santa Fe Irrigation District For Proposition 218 Violations

Posted by Ben Benumof | Dec 20, 2018 | 0 Comments

The following PRESS RELEASE was issued today (12/20/18) by the RANCHO SANTA FE ASSOCIATION (www.rsfassociation.org):

On Wednesday, December 19, 2018, after several years of unsuccessful attempts to work informally and in good faith with the Santa Fe Irrigation District (“SFID” or “District”) to develop a fair, equitable, and Proposition 218 compliant water rate structure, Dr. Benumof's client, Rancho Santa Fe Association (“RSFA” or “Association”), filed a lawsuit against SFID to challenge fees and charges SFID has imposed, and continues to impose, on RSFA and Single Family Residential (“SFR”) customers of the Rancho Santa Fe community in violation of Proposition 218.  Given the political make-up of SFID's Board of Directors (see Footnote #1 below) and the fact that SFID recently (1) declined RSFA's offers to make its experts available to SFID for collaboration and (2) rejected RSFA's government claims for refunds for water overcharges, RSFA initiated this action as a last, necessary resort on behalf of itself and its membership, which includes approximately 1,400 Rancho Santa Fe Single Family Residential (SFR) customers that are served by District.

More specifically, Petitioner and Plaintiff Rancho Santa Fe Association is a domestic, non-profit homeowners' association that owns and manages real property on behalf of its membership in Rancho Santa Fe, California.  The Association's individual members that make up the Single Family Residential (SFR) class defined in the lawsuit receive potable water service that is billed under a four-tiered water rate structure that is non-cost-based and incrementally punitive (and therefore Proposition 218 non-compliant).  As of January 1, 2018, the District's current water rate structure for Single Family Residential use imposes the following bi-monthly tiered commodity charges per 100 cubic feet (HCF) or 748 gallons:

Single Family Residential (SFR) Tiered Water Rates ($ / HCF / TIER)

Tier 1

1-15 HCF

$2.40

Tier 2

16-37 HCF

$2.92

Tier 3

38-165 HCF

$5.47

Tier 4

> 165 HCF

$6.36

RSFA is also billed under this tiered water rate structure for some of its meters and is therefore a member of the class.

Meanwhile, the District's other customers have been, and are currently, charged a flat, uniform rate as follows ($/HCF): Multi-Family Residential ($4.60); Non-Residential ($4.62); Irrigation/Commercial Agriculture ($5.26); Temporary Construction Use ($5.46); Fire Line Use ($5.46); Recycled ($3.45).

As outlined in RSFA's lawsuit, a simple calculation of the percentage increases between the District's four (4) Single Family Residential (SFR) tiers shows that SFID's four (4) tier water rate structure is increasingly punitive from bottom-to-top, penalizing Rancho Santa Fe's relatively large residential customers in Tiers 3 and 4 by charging these customers in excess of the true cost associated with the water service received. 

More specifically, the price of water in Tier 2 is 122% higher than Tier 1, the price of water in Tier 3 is 187% higher than Tier 2, and the price of water in Tier 4 is 116% higher than Tier 3.  Thus, the overall, top-to-bottom increase in water rate pricing from Tier 1 to Tier 4 is 265%, despite the fact that SFID's water supply is admittedly blended, meaning that all potable water served to the Single Family Residential (SFR) customers of Rancho Santa Fe, Fairbanks Ranch, and Solana Beach -- regardless of the location of property in the service area -- is admittedly the same water with the same cost of service.  Thus, there is no legitimate Proposition 218 compliance justification for the punitive rates imposed and charged (i.e., really, overcharged) on Rancho Santa Fe Single Family Residential (RSF) customers. 

In addition, RSFA is billed for potable water service for the Golf Club's outdoor operations under the District's uniform Irrigation rate which is also Proposition 218 non-compliant because it exceeds the average equitable cost of service.   Likewise, other non-residential properties owned by RSFA that receive potable water service are billed under the District's uniform Non-Residential rate – also Proposition 218 non-compliant because it exceeds the average equitable cost of service.   

At the heart of the lawsuit, RSFA's expert rate-making consultant, who was called upon to write “the handbook” on equitable water rate making for the American Water Works Association with specific application to water rate requirements for the industry nationwide and in California in particular, performed a detailed analysis of SFID's current four-tier water rate structure and provided the District with written analysis showing: (a) larger water users in Rancho Santa Fe pay as much as 38% more than they should under the District's punitive tiered rate structure (i.e., in excess of the cost associated with the water service received); and (b) smaller parcels, such as those along the coastal areas of Solana Beach pay less than the equitable uniform cost (i.e., less than the cost associated with the water service received). 

The District's justifications for the difference in water commodity charges as between Single Family Residential (SFR) customers in the Rancho Santa Fe and Solana Beach communities are the ones described in the District's Rate Study, however RSFA's experts believe they are transparently not cost-based.  Specifically, as highlighted in the District's Rate Study, the District either wrongly believes or has been led to believe by its rate making advocates and lawyers that “water purveyors may utilize water rate design to incentivize the efficient use of water” regardless of Proposition 218's proportionality and cost-based mandates.  (See Rate Study, Page 23.)  Indeed, the Rate Study makes clear that tiered water rates have a direct “effect of encouraging conservation by sending a price signal to customers to use less water.”  (Id.)  These qualitative, non-cost-based, and punitive considerations do not satisfy Proposition 218's requirements that water fees and charges be revenue neutral and not exceed the proportional true cost of the service attributable to the parcel. 

While the Association has filed formal litigation against SFID for overcharges related to its current water rate structure, RSFA continues to work with its experts and special counsel and make them available to SFID and its Board to try and informally resolve similar inequities imbedded in SFID's new, proposed two-tier rate structure.  

In that regard, at today's (December 20, 2018) SFID Proposition 218 hearing on SFID's new, proposed two (2) tier rate structure, the Association's special counsel, Benjamin T. Benumof, Ph.D., Esq., the lead litigator and appellate attorney in the well-cited Proposition 218 case Capistrano Taxpayers Association v. City of San Juan Capistrano, emphasized to the SFID Board of Directors that, as it stands, Rancho Santa Fe Single Family Residential (SFR) customers are forced to illegally subsidize the same class of Single Family Residential (SFR) customers of the Solana Beach community who live along the coast and own smaller parcels, costing Rancho Santa Fe customers as 38% more in 2017 for the very same water served to Solana Beach customers without any actual cost based justification (and the overcharges are similar for 2018).  Put simply, Dr. Benumof argued, “there is no true incrementally higher cost basis for charging Single Family Residential (SFR) customers in Rancho Santa Fe a much higher rate than the Single Family Residential customers (SFR) in Solana Beach because the District's water is blended, meaning the same regardless of customer.”  Thus, Dr. Benumof argued, the District's tiered water rates violate Proposition 218; “Proposition 218,” he said, “prohibits a rate structure as alleged in Plaintiff's complaint that requires one group of customers to essentially subsidize another.”

Commenting on the Rancho Santa Fe community's desire for a fair and equitable water rate structure for rural customers, SFID Director King told the SFID Board that its subjectively defined water efficiency constraints, as manifest by its four-tier rate structure, are quite simply a poorly disguised social engineering exercise, couched in terms of conservation, but patently designed to benefit one group of customers (Solana Beach) at the detriment of another (Rancho Santa Fe).   More specifically, vis-à-vis the District Board's unfortunate 3-2 political split that favors smaller parcels and effectively thwarts Proposition 218 compliance, Director King emphasized that the District's four-tier water rate structure is plainly intended to be punitive to the rural customers of Ranch Santa Fe that reasonably use more water simply because properties are larger and require more water for reasonable use (i.e., not because anyone is “wasting” water or using water “inefficiently” as arbitrarily defined and imposed by the District's punitive rate structure). 

Following, the closing of the District's December 20, 2018 public hearing and Director King's comments exposing the inequities of the proposed structure, Directors Dunford and Petree joined Director King in voting (3-2) against the proposed new two (2) tier rate structure. That means that SFID water rates cannot change in any way until a new or revised Cost of Service Study is completed to support a new future Proposition 218 Hearing, which could take several months, more or less.   

Moving forward, RSFA is cautiously optimistic that SFID's decision to consider new alternatives will result in the development of a cost-based, Proposition 218 compliant rate structure that is fair and equitable for all customers of the District.

___________________________________________________

Footnote #1: As highlighted in RSFA's Petition & Complaint, three (3) out of the five (5) District Board members represent areas characterized by primarily smaller parcels along the urban, coastal areas of Solana Beach; under the District's punitively tiered rate structure, these areas pay less than the equitable uniform cost of water due to illegal subsidies imbedded in the tiered water rate pricing in violation of Proposition 218.

About the Author

Ben Benumof

Benjamin ("Ben"​) T. Benumof is the Founder of GEO-LAW.COM and is Special Counsel to Krause Kalfayan Benink & Slavens, LLP.

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Education

Benjamin T. Benumof, Ph.D., Esq.
Ph.D., Earth Sciences, UC Santa Cruz
J.D., University of San Diego School of Law
B.S., Geological Sciences, UC Santa Barbara
B.A., Geography, UC Santa Barbara

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