In a monumental win for California water agencies and their water-conserving customers, Governor Gavin Newsom just signed three new bills into law this week that will ensure water-rate equity and transparency, and minimize rate hikes due to lawsuits.

Hanson Bridgett was deeply involved in getting all three of these bills passed, which are a huge benefit to the water sector, and to water customers who conserve in particular. Together, the package of bills ensures:

• Rates collected for water service will stay within the enterprise fund to defray future costs
   
• Large water users pay their fair share of infrastructure costs
   
• Water agencies won’t be ambushed by lawsuits that raise the costs of water for everyone

What You Need to Know About SB 1072, AB 1827, and AB 2257

SB 1072: Surplus Funds to Reduce Future Fees

Low-water users will especially benefit from SB 1072 (signed September 20, 2024), which requires any charges exceeding the cost of the services to be used to defray future costs. The Constitution requires public water agencies to limit their charges to each customer’s proportional costs of the services received but does not specify what must be done with excess funds. Because public agencies make no profit, any overages are generally deposited in the general fund or reserve fund and then used as a system-wide offset or credit against future rates.

Consistent with that approach, SB 1072 requires that excess fees remain in the enterprise fund and defray the costs of future services and not get returned to high-water users. High-water users have sued water agencies for refunds, claiming that they should not pay their share of larger facilities needed to serve their larger demand. This would result in low-water users subsidizing the cost of those facilities. But SB 1072 clarifies that refunds are only allowed if provided for by a statute – such as refunds for billing errors.

Hanson Bridgett partner Claire Collins worked closely with clients and State Senator Steve Padilla to bring this law into being.

AB 1827: Meter Charges & Peaking

On September 22, 2024, the Governor signed AB 1827, affirming the long-standing practice of using meter size and peak water use to allocate certain water service costs to customers. This law codifies that the incrementally higher costs of water service associated with higher water usage demands, the maximum potential water use, or projected peak water usage are reasonably related to water service and can be factored into water rates.

AB 2257: Pre-Adoption Objections to Rates

Water agencies have been repeatedly sued by “Monday-morning quarterbacks” who object to a water rate structure only after the rate has been adopted, and after customers have already been charged. These objections are often not known to the agency until the lawsuit is filed. To ensure that agencies have an opportunity to respond to objections (and fix any errors) before a rate is adopted, AB 2257 (signed by the Governor on September 25, 2024) authorizes water agencies to create official procedures requiring an objection prior to adoption of that rate to prevent unanticipated lawsuits. If a local agency follows this procedure, then only those people who filed an objection may legally challenge that rate, and the evidence in that lawsuit will be limited to the official record of proceedings. 

AB 2257 provides a meaningful opportunity to resolve ratepayer objections before resorting to litigation. This bill is the result of a multi-year effort of water agencies throughout California, including Hanson Bridgett clients, to adopt reasonable “administrative exhaustion” procedures.

Key Takeaway

All three of these bills amend the Proposition 218 Omnibus Implementation Act and help protect public water suppliers and their rate-payers from costly and time-consuming lawsuits brought by high-water users and unhappy ratepayers. Those lawsuits raise costs for all ratepayers, often disproportionately impacting low-income and low-water use customers.

Hanson Bridgett has worked on behalf of public agencies and the customers they serve since our formation in 1958. Our attorneys work hand in hand with public agencies, engineers, and rate consultants to ensure that rates and fees subject to Proposition 218 are fair, reasonable, and defensible.