Photo by Elizabeth Desmond.

COURTHOUSE NEWS: California water district still on the hook for $17 million refund to consumers charged different rates

A state appeals court decided that the different water prices for residential and agricultural customers violated state and federal constitutions.

By Matt Simons, Courthouse News Service

A California state appeals court upheld a $17 million decision Friday awarding refunds to customers of the Coachella Valley Water District after a panel of judges ruled the government utility agency unconstitutionally charged non-agricultural customers more than agricultural ones.

In its 55-page ruling, a panel of judges of California’s Fourth District Court of Appeal affirmed a lower court decision in favor of the Howard Jarvis Taxpayers Association, the nonprofit that brought the case. The court said that the difference in water rates violated state law because the rates are property taxes under the California constitution — taxes that were not approved by voters.

The appellate court also rejected arguments by the water district that the association lacked standing to bring the suit, or that a refund was not mandated by law.

“We reject both arguments, finding the rates unlawful and that a refund remedy is constitutionally mandated,” California Appellate Judge Michael J. Raphael said in the decision.

The association claimed in a 2019 class action that “class one” agricultural consumers were charged significantly less than primarily residential “Class two” consumers.

The water district had argued that domestic customers in general were never obligated to pay these specific rates and thus suffered no injury. The court however, said that customers did pay for class two rates indirectly by paying specific “replenishment assessment charges.”

“Here, because domestic customers pay Class 2 rates indirectly, they also suffer economic injury through lost money,” Raphael said.

The court also ruled that the rate paid by non-agricultural customers was not proportional to the costs of supplying them, finding it created a situation where domestic water customers were forced to subsidize “the interests of [a] few large agricultural property owners” in violation of the California and United States Constitutions.

“We feel vindicated that the users of the Coachella Valley Water District are getting justice, and we are gratified that the Court of Appealshas rejected the attempts of the water districts to avoid their responsibility,” Jeffrey Lee Costell of Costell and Adelson Law, who represented the association, told Courthouse News.

According to the association, even though the cost of service is substantially the same to the utility agency, customers who use canal water “for commercial agricultural activities,”  were charged as “class one” customers at a rate of $34.32 per acre-foot. Meanwhile, “class two” customers, largely residential consumers, were charged $102.12 per acre-foot, almost three times the price.

The plaintiffs argued because the non-agricultural rate was a property tax passed “without prior voter approval,” it violated the California Constitution, specifically Propositions 218 and 26.

On behalf of all “non-agricultural water customers,” the association sought both a writ directing the water district to stop enforcing the rate structure and a refund of all amounts collected for class two rates.

In court, the water district justified its different prices on a “historical priority” theory, arguing that farmers have been entitled to low-priced and even free canal water in the past.

Lower court judges didn’t buy these arguments. In November 2021, California Superior Court Judge Sunshine Sykes held that the rates violated the state constitution and saying the water district’s claims “rest[ed] almost entirely on a historical argument,” and that its reliance on this rationale demonstrated it had not attempted to show its rates squared with the state constitution.

In March 2023, a lower court ruled rate differences violated the state and permanently blocked the water district from charging separate rates. It awarded class two customers $17,454,603 for invalid charges from March 2018 through June 2022 and $314,754 for interest accrued through June 2022.

Costell said that customers won’t see their refunds until the water district is finished exhausting its appeal options, including its likely next move to appeal to the California Supreme Court. However, he was optimistic that consumers could expect them “within a few months.”

“People should pressure the water district to stop spending millions of dollars of district money to defend indefensible, unconstitutional water rates that have harmed the residential customers, including people who can’t afford to be harmed,” Costell told Courthouse News.

He also encouraged voters to make their opinions known when members of the water district’s current board of directors are up for re-election in 2026.

Raphael was joined in his decision by California Appellate Judges Art W. McKinster and Manuel A. Ramirez, who concurred.

The Coachella Valley Water District and its attorneys could not be reached for comment by press time.