Fullerton Overcharged Water Customers for Years: Report

The city is considering how to pay back more than $2 million in extra revenue

By Jonathan Gonzalez
|  Monday, Mar 19, 2012  |  Updated 8:24 PM PDT
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Fullerton to Pay Back for Overcharging

Tim Graham

Fullerton water utility customers have been paying too much for water since 1997, when a state-wide amendment outlawed a tax that city collected until this year.

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The residents of Fullerton may finally learn their reimbursement options stemming from years of overcharging from the local water utility.

The City of Fullerton's Ad Hoc Water Rate Study Committee was scheduled to hold a public meeting at 6 p.m. Monday focusing on reimbursement for water utility customers, who have been overcharged since 1997 because of an illegal fee, according to a new report.

The public is invited to speak at the meeting to provide input on how the city plans to give back $2.5 million to its customers, or roughly $830,000 for each of the last three years' worth of extra revenue it is required to pay back.

The statute of limitations requires the city to only return the previous three years of extra revenue.

Fullerton had been charging its residents a 10 percent "in-lieu franchise fee" since 1970 to offset the costs of operating water maintenance yards and office space, according to the report by the Municipal & Financial Services Group, which the city hired to investigate the legality of the fee.

But a California initiative passed in 1996, Proposition 218, stated that any fees charged for utility services must match the actual costs of providing those services. According to the city, an exemption for water service fees was overturned in a 2006 court decision.

“This report gives us a clearer idea of the cost of service and a methodology for assessing fees in the future," Mayor Sharon Quirk-Silva said in a statement.

Only 6.7 percent of the fee is actually necessary to operate the costs for the water utility, or about $1.67 million a year, with the remaining $830,000 going into the city's general fund, also a violation of Prop 218.

"Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed," the amendment states.

Options

As a result, the city has proposed several options for repaying the extra $2.5 million in revenue:

1. Rebate Option: Over the next three years, current utility water customers would receive a refund for the difference between the 10 percent rate and the 6.7 percent rate from the last three years.

2. Infrastructure Option: The general fund would transfer $830,000 each of the next three years to the water fund for the replacement of again infrastructure.

3. Asset Exchange Option: The city's general fund would give a piece of land of equal value to the water fund for to build future water facilities.

4. Pass Through Option: The general fund would pay the next $2.5 million in costs charged by the Metropolitan Water District’s, Orange County Water District’s and the city electrical provider’s pass-through rate increase, which would take about two or three years.

Other options will be heard and considered at Monday's meeting.

The committee will make recommendations to the city council, which is expected to vote on the matter on April 3, according to the OC Register.

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