                                     TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                          OFFICE OF THE ATTORNEY GENERAL
                                                    State of California

                                                  DANIEL E. LUNGREN
                                                     Attorney General
                                         ______________________________________

                                        OPINION            :
                                                           :          No. 97-406
                                       of                  :
                                                           :          July 14, 1997
                             DANIEL E. LUNGREN             :
                                Attorney General           :
                                                           :
                              ANTHONY Da VIGO              :
                             Deputy Attorney General       :
                                                           :
                    ______________________________________________________________________

                   THE HONORABLE ROBERT A. RYAN, JR., COUNTY COUNSEL, COUNTY OF
         SACRAMENTO, has requested an opinion on the following question:

                         May a county water district adopt a service fee structure providing a lower water rate for its
         public agency customers?

                                                         CONCLUSION

                         A county water district may adopt a service fee structure providing a lower water rate for its
         public agency customers.

                                                           ANALYSIS

                           Recently a county water district adopted a new service fee structure increasing the water rate
         for its customers. School districts and park districts requested that the new rate not be applied to them for one
         year and that they pay 50 percent of the new rate thereafter. The question presented for resolution is whether
         the water district may agree to the requests of the school districts and park districts. We conclude that it may.

                           A county water district is operated pursuant to the provisions of the County Water District
         Law (Wat. Code, §§ 30000-33901). Footnote No. 1 It is a "municipal corporation" within the meaning of
         section 9 of article XI of the Constitution, Footnote No. 2 and has broad powers that include the right to
         contract to provide water to other public agencies (§ 31408; Arcade County Water Dist. v. Arcade Fire Dist.
         (1970) 6 Cal.App.3d 232, 238-239).

                           A county water district is authorized to establish rules and regulations for the sale,
         distribution, and use of its water (§ 31024) and is required to fix water rates (§§ 31007, 31024) that are
         reasonable and fair (Hansen v. City of San Buenaventura (1986) 42 Cal.3d 1172, 1181; Carlton Santee Corp.
         v. Padre Dam Mun. Water District (1981) 120 Cal.App.3d 14, 30; Kennedy v. City of Ukiah (1977) 69
         Cal.App.3d 545, 552; Boynton v. City of Lakeport Mun. Sewer Dist. (1972) 28 Cal.App.3d 91, 94-95).



1 of 4
                               We are not asked whether a water district must give other public agencies a preferential
         water rate. Clearly it is not so required. In Arcade County Water Dist. v. Arcade Fire Dist., supra, 6
         Cal.App.3d 232, for example, the court rejected such an argument made by five fire protection districts. The
         court stated that "a county water district is under no obligation to supply free water service to a fire district
         . . . ." (Id., at p. 239.) The court held that the fire districts must pay the water rate charged them by the water
         district as long as the rate is not "unreasonable, excessive and arbitrary." (Id., at p. 240.)

                          Certain language in the Arcade case prompts the present inquiry. The court referred to the
         "inequity" of supplying free water to the fire districts:

                            "The inequity of requiring the water districts to supply free water to the fire districts
               is shown by the fact that some of the fire districts are not coterminous with the particular water
               district. Thus, as quoted by Judge Irving H. Perluss in his [memorandum] opinion overruling the
               demurrers to the complaints from `Water District Organization,' A Report of the Assembly
               Interim Committee on Water to the California Legislature (vol. 26, no. 14, p. 25 (Jan. 1965)) `the
               area receiving the benefits of fire protection facilities may not pay their fair share of the cost
               through the financing water district. Second, most water districts pay for their water service out
               of water revenue, that is, water charges, whereas almost all fire agencies are financed by direct
               tax on assessed valuation. The amount of water used by a home or business frequently bears no
               relation to the value of the property receiving the fire protection. Consequently, if additional fire
               protection costs were allocated through additional water rate charges, a burden would be placed
               upon the water users of public water districts which in no way would be commensurate to the
               benefits received.'" (Arcade County Water Dist. v. Arcade Fire Dept., supra, 6 Cal.App.3d at
               239.)

         Does such language by the court compel the conclusion that a water district may not charge public agencies
         less than its private customers? We believe not.

                           First, the Arcade court was not considering whether the two water districts in question could
         provide water to the fire districts at a lower rate. Indeed, the court appears to acknowledge that the water
         districts could have provided free water service "as a gift" to the fire districts. (Arcade County Water Dist. v.
         Arcade Fire Dept., supra, 6 Cal.App.3d at 237.)

                           More importantly, numerous courts dealing with this precise issue have held that a uniform
         water rate for all customers is not required under the "reasonableness" test. (Hansen v. City of San
         Buenaventura, supra, 42 Cal.3d 1172 [nonresidents charged more than residents of city]; Kennedy v. City of
         Ukiah, supra, 69 Cal.App.3d 545 [tenants in multiple unit dwellings charged more than single family
         residences]; Elliott v. City of Pacific Grove (1975) 54 Cal.App.3d 53 [nonresidents charged more than
         residents of city].) In Durant v. City of Beverly Hills (1940) 39 Cal.App.2d 133, 138-139, the court
         explained:

                           ". . . . Lack of uniformity in the rate charged is not necessarily unlawful
               discrimination, and is not prima facie unreasonable. Discrimination to be objectionable must
               draw an unfair line or strike an unfair balance between those in like circumstances having equal
               rights and privileges. `The fundamental theory of rate making for public utilities is that there
               shall be but one rate for a particular service, and a charge made to one patron or consumer
               different from that made to another, for the same service under like circumstances, constitutes
               undue discrimination and renders the charge improper. The fact, however, that a rate is
               discriminatory by comparison with another rate does not necessarily establish or imply that
               either of them is unreasonable in the sense of being inadequate or exorbitant. . . . It is only unjust
               or unreasonable discrimination which renders a rate or charge unreasonable; and a utility may,
               without being guilty of unlawful discrimination, classify its customers or patrons upon any
                        bl b                 d       h            f    h h h             h      l

2 of 4
               reasonable basis, as according to the purpose for which they receive the utility's service or
               product, or the quantity or amount received, and, subject to the general requirements of
               reasonableness, make separate rates for each class or group, even though there be but one
               customer included therein.' [Citation.]

                            ". . . . The rates here complained of, having been fixed by the lawful rate-fixing body,
               must be presumed to be reasonable, fair and lawful. The appellant was entitled to rest upon that
               presumption until the respondent made some showing to the contrary. `Mere difference in the
               rates charged various classes of users is not sufficient to establish an unjustifiable
               discrimination.' [Citation.] There are many reasons of which the court might take judicial notice
               and which would justify a difference in rates of service to consumers differently situated. These
               reasons would support the presumption that the action of the city council in fixing the rates was
               reasonable and fair. But, in the absence of any showing of any character that the charges were
               unreasonable, unfair or fraudulently or arbitrarily established, the trial court had no case for any
               relief to respondent. In short, the respondent has sought to substitute the court for the city
               council and have the court fix the charges which he should pay. The universal rule is that in
               these circumstances the court is not a rate-fixing body, that the matter of fixing water rates is not
               judicial, but is legislative in character, and that the limit of its function and jurisdiction is to find,
               upon a proper showing, that the rates fixed are unreasonable and unfair. [Citations.]" (Italics
               added.)

                           In Hansen v. City of San Buenaventura, supra, 42 Cal.3d 1172, the Supreme Court approved
         a three-tiered classification scheme that imposed different water rates upon city residents, nonresidents, and
         users of nonpotable, untreated water. (Id., at p. 1187.) It also noted classifications based upon industrial use
         and domestic use. (Ibid.)

                           It may not be fairly argued that private water users are "`in like circumstances having equal
         rights and privileges'" (Hansen v. City of San Buenaventura, supra, 42 Cal.3d at 1180) vis-a-vis public
         agency water users such as school districts and park districts. The purpose of the latter is to serve the general
         public. Their water usage serves to promote the accomplishment of essential government services. Taxpayers
         who provide funds to school districts and park districts are the customers of the water district and receive
         government services from the other public agencies.

                         Both the Constitution and the Legislature have recognized the special character of public
         agencies in exempting them from the payment of specified taxes, fees, and charges. For example, "[p]roperty
         owned by a local government" is generally exempt from property taxation. (Cal. Const., art. XIII, § 3.)
         Government Code section 6103 provides in part:

                            "Neither the state nor any county, city, district, or other political subdivision, nor any
               public officer or body, acting in his official capacity on behalf of the state, or any county, city,
               district or other political subdivision, shall pay or deposit any fee for the filing of any document
               or paper, for the performance of any official service, or for the filing of any stipulation or
               agreement which may constitute an appearance in any court by any other party to the stipulation
               or agreement. . . ."

         We believe that a water district may thus place public agencies in a different rate classification from other
         water users based upon "the purpose for which they receive the . . . service or product." (Durant v. City of
         Beverly Hills, supra, 39 Cal.App.2d at 139.)

                           Finally, we note that in Hansen v. City of San Buenaventura, supra, 42 Cal.3d at 1182, the
         nonresidents of the city were assessed a 70 percent surcharge over the city's residents while an independent
         analysis "found a surcharge of 98.5 percent was justified." If a private water user may be charged less than
         what is "justified" under the reasonableness test so also may a public agency Footnote No 3

3 of 4
         what is justified under the reasonableness test, so also may a public agency. Footnote No. 3

                            We conclude that a county water district may adopt a service fee structure providing a lower
         water rate for its public agency customers.

                                                                   *****

         Footnote No. 1
         All section references herein are to the Water Code.
         Footnote No. 2
         Subdivision (a) of article XI, section 9, provides:
                   "A municipal corporation may establish, purchase, and operate public works to furnish its inhabitants with light,
         water, power, heat, transportation, or means of communication. It may furnish those services outside its boundaries, except
         within another municipal corporation which furnishes the same service and does not consent."
         Footnote No. 3
         The constitutional prohibition against a public agency making a gift of any "money or thing of value" (Cal.Const., art. XVI,
         § 6) has no application here, since there is no legal obligation to charge a uniform rate for water. (See Community
         Television of So. Cal. v. County of Los Angeles (1975) 44 Cal.App.3d 990, 996; Golden Gate Bridge etc. Dist. v. Kuehring
         (1970) 4 Cal.App.3d 204, 207; 80 Ops.Cal.Atty.Gen. 56, 57-60 (1997); 69 Ops.Cal.Atty.Gen. 168, 180 (1986); 64
         Ops.Cal.Atty.Gen. 478, 481-482 (1981).)
         Also, we are cognizant of recently adopted articles XIII C and XIII D of the Constitution, providing for the right to vote on
         newly adopted or increased fees or charges for services relating to property ownership. Since we are concerned here only
         with a rate preference for public agencies and it does not inexorably follow that such a preference would result in a fee
         increase for other water users or a fee for other water users that would "exceed the proportional cost of the service
         attributable to the parcel" (Cal. Const., art. XIII D, § 6, subd. (b)(3)), we have no occasion here to determine whether the
         fees in question are an "incident of property ownership" (Cal. Const., art. XIII D, § 2, subd. (e)). (See also § 71616; Brydon
         v. East Bay Mun. Utility Dist. (1994) 24 Cal.App.4th 178, 187-195, 202-202.)




4 of 4
