California Water Law Update

To address the worsening drought, on April 1, 2015, Governor Brown issued Executive Order B-29-15 (“Executive Order”), mandating a 25% reduction in potable urban water consumption. In response, the State Water Resources Control Board has passed emergency regulations that will directly affect water districts and users. And a recent case from the Fourth District Court of Appeal struck down the City of San Juan Capistrano’s tiered water rates under Proposition 218.

Summary of the Executive Order

The main directive of Governor Brown’s Executive Order is the following: the State Water Resources Control Board (the “Water Board”) will impose restrictions to achieve a statewide 25% reduction in potable urban water usage through February 28, 2016. Further, the Department of Water Resources (the “Department”), along with local agencies, will attempt statewide to collectively replace 50 million square feet of lawns and ornamental turf with drought tolerant landscapes. And the California Energy Commission, along with the Department and the Water Board, will implement an appliance rebate program to provide monetary incentives for replacement of household devices. The Water Board will impose restrictions to require that commercial, industrial, and institutional properties immediately implement water efficiency measures to reduce potable water usage in an amount consistent with the reduction targets (i.e. 25% reduction in potable urban water usage).

What the Executive Order Means for Water Users

Prohibitions. Prohibitions for all water users include: using potable water to wash sidewalks and driveways; runoff when irrigating with potable water; using hoses with no shutoff nozzles to wash cars; using potable water in decorative water features that do not recirculate the water; and using outdoor irrigation during and 48 hours following measurable precipitation.

Curtailment. Water right holders will likely see immediate restrictions with the implementation of this Executive Order. Curtailment is a tool that the Water Board uses to administer the state’s water rights system. In times of drought and limited supply, the most recent (“junior”) right holder must be the first to discontinue use. However, because of the severity of this drought, even some senior holders of water rights may be curtailed. If dry weather persists, the Water Board will notify certain water rights holders in critically dry watersheds of the requirement to stop diverting water under their water right, based on their priority. The notices and the estimated timing of these curtailments are outlined on the Water Board’s website.

Water Board’s Emergency Regulations to Achieve 25% Conservation

On May 5, 2015 the State Water Resources Control Board approved Emergency Regulations requiring “an immediate 25% reduction in overall potable urban water use statewide in accordance with Governor Jerry Brown’s April 1 Executive Order.”[1] According to the Emergency Regulations, each urban water supplier will be required to reduce total potable water production by a specified percentage, which will cumulatively achieve 25% in water conservation statewide. The Emergency Regulations assign each of the 411 urban water suppliers to one of eight tiers of conservation standards, which span from 8% to 36% conservation. For a list of the water suppliers and their corresponding tiers, please see the State Water Resources Control Board website.[2] A few examples of note include the Riverside Highland Water Company which is in the highest conservation tier and will be required to reduce its water usage by 36%, and the Western Municipal Water District of Riverside which will be required to meet a conservation percentage of 32%. The cities of Riverside, Chino Hills, and San Juan Capistrano will be required to meet a conservation standard of 28%, and the cities of Chino and Ontario are required to meet a conservation standard of 24%. The Irvine Ranch Water District will be required to reduce water use by 16%. Local agencies may adopt more stringent regulations for water conservation. The state may impose a fine of up to $500 per day on local agencies for failure to follow the regulations, and will impose even stricter penalties for water agencies.

Recent Case On Tiered Water Rates

One might think the easiest way to conserve water would be to hike up the price using a tiered rate structure that keeps essential use of water affordable for everyone, but which imposes higher costs on non-essential and wasteful use. But the California Court of Appeal’s recent decision in Capistrano Tax Payers Association v. City of San Juan Capistrano California — Cal.Rptr.3d —, 2015 WL 1798898 (Cal.App. 4 Dist.), on April 20, 2015, brought into focus the difficulty in California of imposing tiered water rates. In a nutshell, Proposition 218 forbids governmental agencies from charging customers more for a service than it costs to provide the service. Thus, water rates must be based upon the actual costs of providing water at various levels of usage rather than pre-determined usage budgets. City officials argued that tiered structures provide an incentive for people to conserve water. Irrespective of the wisdom or need for such a policy, however, the court held that it was simply inconsistent with Proposition 218’s constitutional mandate. The court found the city’s theory was “inconsistent with the Constitution. It would open up a loophole [in the California Constitution] so large it would virtually repeal it.” The court was clear that tiered rate structures are not per se invalid. But the differing tiered rates must be based on the true costs of providing water in increased quantities.

Conclusion

Ultimately, local water agencies are tasked with establishing and implementing water conservation regulations that comport with Governor Brown’s Executive Order. The local agencies’ regulations can be more stringent than those called for in the Governor’s Executive Order. It will be important for real estate investors, developers, and lenders stay abreast of the steps being considered and taken by their local water districts, to ensure water availability and compliance with local water conservation regulations.

May 11, 2015

[1] http://www.waterboards.ca.gov/press_room/press_releases/2015/pr050515_water_conservation.pdf

[2] http://www.waterboards.ca.gov/waterrights/water_issues/programs/drought/docs/emergency_regulations/supplier_tiers_20150428.pdf