A tiered or increasing-block rate charges more per thousand gallons in each successive block of consumption. It is used to encourage conservation, to recover the cost of peaking capacity from the customers who cause it, and, in practice, to shift revenue toward high-volume users.
The problem with the third reason
The first two are cost arguments; the third is not, and the difference has been litigated. A California appellate court held in 2015 that a city had not carried its burden where it allocated its costs across pre-determined usage budgets rather than calculating what it actually cost to supply water at each tier. A 2024 decision held that reliance on industry practice, conservation goals and theoretical peaking factors, without data substantiating the cost differences between tiers, did not satisfy the state’s proportionality requirement.
Neither decision holds that tiered rates are unlawful. Both hold that the tier differentials have to be supported by a cost calculation the agency can produce.
What supporting a tier looks like
Peaking factors measured from the utility’s own production records rather than taken from a manual. A demonstrated relationship between the consumption in a tier and the capacity or supply cost that consumption drives. Where a higher tier reflects a genuinely more expensive marginal supply, the cost of that supply, documented.
Sources
Capistrano Taxpayers Assn., Inc. v City of San Juan Capistrano (2015) 235 Cal.App.4th 1493. Coziahr v Otay Water District (2024) 103 Cal.App.5th 785. California Constitution, article XIII D, section 6(b)(3). American Water Works Association, Manual M1, 7th ed. (2017), on increasing-block rate design.