On June 4, 2008, California Governor Arnold Schwarzenegger declared the first statewide drought in sixteen years.  Shortly thereafter he declared a drought emergency in nine Central Valley counties, from Sacramento to Kern.  In Southern California, the Metropolitan Water District of Southern California (“Met”) issued a Water Supply Alert on June 10, 2008, and urged cities, counties, and regional and local water agencies to pursue extraordinary conservation measures, including adoption and implementation of local drought ordinances.

In October 2007, Best Best & Krieger LLP advised its water agencies and utilities clients of recent court decisions affecting water supplies pumped from the Sacramento-San Joaquin Delta and impending water shortages.  By memorandum dated October 26, 2007, we outlined practical guidelines for water agencies to reference in the event that they determine it is necessary to adopt a water conservation program or declare a water shortage emergency as a result of the pressing water supply issues throughout the State.  In light of the recent actions taken by the Governor and Met, we are reissuing an updated copy of the October 26, 2007 memorandum.  This memorandum addresses individual questions that BB&K’s water agency and utility clients have encountered since the court decisions and the Governor’s recent declarations concerning State water supplies.  Because each agency has its own unique needs and statutory requirements, please do not hesitate to consult with a BB&K attorney prior to taking any action to address your agency’s specific water shortage challenges.

Water Shortage Issues and Solutions

Section 1.    Adopting Water Conservation Programs

What are the notice and procedural requirements for adopting a water conservation program?

Many public agencies already have a water conservation program in place.  We strongly recommend that public agencies review existing water conservation policies and programs to determine what revisions may be needed to meet potential mandatory water cutbacks.  To adopt or revise a water conservation program under Water Code sections 375 et seq., a public agency must:

• hold a noticed public hearing prior to adopting/revising the water conservation program;[1]
• publish a notice of the hearing in the board or council agenda; however, in an abundance of caution, agencies may desire to publish the notice in a newspaper of general circulation at least once seven days prior to the hearing;[2]
• adopt a resolution or ordinance making appropriate findings of necessity and implementing the water conservation program;[3] and
• publish the full resolution or ordinance within ten (10) days of adopting the resolution or ordinance once in a newspaper of general circulation which is printed, published, and circulated in the agency’s boundaries.  If there is no such newspaper, the ordinance or resolution must be posted within 10 days after its adoption in three public places within the agency’s boundaries.[4]

Can a public agency impose monetary penalties for noncompliance with a water conservation program?

Yes.  Violation of a requirement of a water conservation program may be subject to monetary penalties and/or prosecuted as a misdemeanor.[5] 

Can a public agency adopt regulatory fees to pay for its water conservation regulatory program?

Yes.  Properly structured regulatory fees that do not exceed the cost of the regulatory activity for which the fee is charged may also be imposed by a public agency.[6]  An agency should contact its legal counsel to ensure such regulatory fees are properly structured.

Are such monetary penalties and regulatory fees subject to the notice and protest provisions of Proposition 218?

No.  Assuming the monetary penalties and regulatory fees are properly structured, an agency need only provide notice of the hearing, make findings regarding the necessity of such water conservation measures, and publish the resolution or ordinance in full within ten (10) days of adopting the water conservation program as outlined above.[7]

Section 2.    Declaring a Water Shortage Emergency

What are the notice and procedural requirements for declaring a Water Shortage Emergency?

Pursuant to Water Code sections 350 et seq., unless an immediate emergency exists, such as a broken pipe or dam failure, a public agency must:

• hold a noticed public hearing prior to declaring the water shortage emergency;[8]
• publish notice of the hearing once in a newspaper of general circulation which is printed, published, and circulated in the agency’s boundaries or, if none, in the county in which the agency is located;[9] and
• adopt regulations and restrictions governing the use of water, upon the declaration of a water shortage emergency.[10] The regulations and restrictions may include the right to deny new service connections, the right to discontinue service to customers violating the regulations and restrictions, and provisions for the enforcement by discontinuing service to customers willfully violating the regulations and restrictions.[11]

Can a public agency impose monetary penalties for noncompliance with the regulations and restrictions adopted following the declaration of a water shortage emergency? 

Yes.[12]  See discussion in Section 1 above. 

Can a public agency adopt regulatory fees to pay for its water conservation regulatory program during a water shortage emergency?

 Yes.[13]  See discussion in Section 1 above.

Are such monetary penalties and regulatory fees subject to the notice and protest provisions of Proposition 218? 

No.[14]  See discussion in Section 1 above. 

Section 3.    Conservation-based Water Rates and Water Rate Increases

Can a public agency use an inclining block rate structure as part of its water conservation program?

Yes. The adoption of water conservation programs in the form of tiered or inclining block rates for increased water use, however, are subject to the procedural and substantive requirements of Proposition 218, and must therefore be adopted in compliance with these provisions.[15]  The tiers must be structured in such a way as to internalize the costs of high water use without exceeding the amount required to provide the water service.[16]  The adoption of any new or revised inclining block rate structure should also be done in conjunction with the adoption of a Water Shortage Emergency or a Water Conservation Program.

If there are mandatory water cutbacks, will it be necessary for my agency to increase its water rates?

Maybe.  In some instances mandatory water cutbacks may result in significant reductions in water revenues resulting from reduced water sales.  Each agency should review its individual rate structure and revenue needs to determine if it is necessary to increase its water rates or change its water rate structure to recover the cost of providing water service.

Are such rate increases subject to the notice and protest provisions of Proposition 218?

Yes.  If an agency increases its water rates or restructures its water rates in a manner that results in an increase in its water service fees and charges, then the agency must comply with the notice and protest provisions of Proposition 218. 

Section 4.      Water Supply and Demand Analyses 

Will water conservation measures affect the analyses prepared for Water Supply Assessments, Written Verifications, and other water supply analyses? 

Yes.  For projects subject to the Water Supply Assessment (“WSA”) and/or Written Verification (“WV”) requirements of Water Code section 10910 et seq. and Government Code section 66473.7, respectively, the generally applicable standard is whether the retail water system’s total projected supplies available during normal, single-dry and multiple dry years during a 20-year projection will meet the projected water demand associated with the proposed project, in addition to the system’s existing and planned future uses.[17]  Water conservation measures will affect both water demand and supply calculations, which in turn may significantly influence analyses prepared under the WSA/WV statutes.  Water supply analyses prepared under the California Environmental Quality Act (“CEQA”) should also account for these factors.  In any case, the interplay between conservation and water supply and demand analyses must be carefully scrutinized. 

As referenced above, there are certain requirements under Proposition 218 which may be implicated by the adoption of water conservation regulatory fees and charges and/or increases in the rates for water service fees and charges.  If you have any questions regarding the above or would like assistance in (i) declaring a Water Shortage Emergency; (ii) developing a Water Conservation Program; (iii) implementing revised water service rates, monetary penalties, or water conservation regulatory fees and charges; or (iv) reviewing the implications of any of the forgoing on projects subject to WSA, WV, and/or CEQA requirements, please do not hesitate to contact Best Best & Krieger LLP for assistance. 

KELLY J. SALT 
kelly.salt@bbklaw.com 

PAETER E. GARCIA
paeter.garcia@bbklaw.com 

STEVE M. ANDERSON
steve.anderson@bbklaw.com 

JEFF FERRE
jeff.ferre@bbklaw.com

[1] Cal. Water Code § 375(a).
[2] See Cal. Gov. Code § 6060; Cal. Water Code § 352.
[3] Cal. Water Code § 375(a).
[4] Cal. Water Code § 376; Cal. Gov. Code § 6061.
[5] Cal. Const. art. X, § 2; Cal. Water Code §§ 100, 104, 105, 106, 350-358, 375-377.
[6] See id.; Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal. App. 4th 1364, 1390-91.
[7] See Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal. App. 4th 1364, 1390-91; Cal. Water Code §§ 375-377.
[8]  Cal. Water Code §§ 351, 352.
[9]  Cal. Water Code § 352; Cal. Gov. Code § 6061.
[10] Cal. Water Code § 353.
[11] Cal. Water Code § 356.
[12] See Cal. Const. art. X, § 2; Cal. Water Code §§ 100, 104, 105, 106, 350-358, 375-377.
[13] See id.; Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal. App. 4th 1364, 1390-91.
[14] Id.; Cal. Water Code § 356.
[15]Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal. App. 4th 1364, 1388; see also Brydon v. East Bay Municipal Utility District(1994) 24 Cal.App.4th 178, 193-95 for a description of the general permissibility of block rate structures.
[16] Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal. App. 4th 1364, 1390.
[17] See Cal. Water Code § 10910(c)(3-4); Cal. Govt. Code § 66473.7(a)(2) and (b)(1).