San Juan Capistrano, City of

California

The City of San Juan Capistrano was recently sued by its ratepayers regarding a tiered rate structure developed by the City’s previous rate consultants. The plaintiffs were concerned that the previous rate structure did not meet the cost of service test per the requirements of Proposition 218, based on not allocating costs according to the cost of service provided and the lack of administrative records.

The City selected RFC to assist with resolving this matter. One factor in the City’s decision for selecting RFC was the rigorous nature of our approach for defensible rate structures as compared to many practitioners in the industry. In the case of the City and other agencies, a common practice has been to base tier prices on multipliers. This leaves agencies exposed to courts opining that their multiplier approach violates the “arbitrary and capricious” provision of Proposition 218.

In resolving the City’s matter, RFC implemented its approach for satisfying a clear nexus for the rates; there needs to be a clear justification of the tiers and pricing. RFC achieved this nexus by developing rate components used to justify the various tiers for the proposed rate structure and differences in the price for each tier. RFC’s work withstood the rigorous scrutiny of several City Council meetings, including a multi-hour discussion confirming the defensibility of RFC’s cost of service approach, and the rates were approved and adopted.