Filed 1/19/16

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

NEWHALL COUNTY WATER 

DISTRICT,

Plaintiff and Respondent,

v.

CASTAIC LAKE WATER AGENCY et 

al., 

Defendants and Appellants.

 B257964

 (Los Angeles County

 Super. Ct. No. BS142690)

APPEAL from a judgment of the Superior Court for the County of Los Angeles. 

James C. Chalfant, Judge. Affirmed.

Best Best & Krieger, Jeffrey V. Dunn, and Kimberly E. Hood for Defendants and 

Appellants.

Colantuono, Highsmith & Whatley, Michael G. Colantuono, David J. Ruderman, 

Jon R. di Cristina; Lagerlof, Senecal, Gosney & Kruse and Thomas S. Bunn III for 

Plaintiff and Respondent.

____________________________________
2

SUMMARY

Plaintiff Newhall County Water District (Newhall), a retail water purveyor, 

challenged a wholesale water rate increase adopted in February 2013 by the board of 

directors of defendant Castaic Lake Water Agency (the Agency), a government entity

responsible for providing imported water to the four retail water purveyors in the Santa 

Clarita Valley. The trial court found the Agency’s rates violated article XIII C of the 

California Constitution (Proposition 26). Proposition 26 defines any local government 

levy, charge or exaction as a tax requiring voter approval, unless (as relevant here) it is 

imposed “for a specific government service or product provided directly to the payor that 

is not provided to those not charged, and which does not exceed the reasonable costs to 

the local government of providing the service or product.” (Cal. Const., art. XIII C, § 1, 

subd. (e)(2).)1 

The challenged rates did not comply with this exception, the trial court concluded,

because the Agency based its wholesale rate for imported water in substantial part on 

Newhall’s use of groundwater, which was not supplied by the Agency. Consequently,

the wholesale water cost allocated to Newhall did not, as required, “bear a fair or 

reasonable relationship to [Newhall’s] burdens on, or benefits received from, the 

[Agency’s] activity.” (Art. XIII C, § 1, subd. (e), final par.)

We affirm the trial court’s judgment.

FACTS

We base our recitation of the facts in substantial part on the trial court’s lucid 

descriptions of the background facts and circumstances giving rise to this litigation.

1. The Parties

The Agency is a special district and public agency of the state established in 1962 

as a wholesale water agency to provide imported water to the water purveyors in the 

Santa Clarita Valley. It is authorized to acquire water and water rights, and to provide, 

sell and deliver that water “at wholesale only” for municipal, industrial, domestic and 

 

1 All further references to any “article” are to the California Constitution.
3

other purposes. (Wat. Code Appen., § 103-15.) The Agency supplies imported water, 

purchased primarily from the State Water Project, to four retail water purveyors, 

including Newhall.

Newhall is also a special district and public agency of the state. Newhall has 

served its customers for over 60 years, providing treated potable water to communities 

near Santa Clarita, primarily to single family residences. Newhall owns and operates 

distribution and transmission mains, reservoirs, booster pump stations, and 11 active 

groundwater wells. 

Two of the other three retail water purveyors are owned or controlled by the 

Agency: Santa Clarita Water Division (owned and operated by the Agency) and 

Valencia Water Company (an investor-owned water utility controlled by the Agency 

since December 21, 2012). Through these two retailers, the Agency supplies about 

83 percent of the water demand in the Santa Clarita Valley. The Agency’s stated vision 

is to manage all water sales in the Santa Clarita Valley, both wholesale and retail. 

The fourth retailer is Los Angeles County Waterworks District No. 36 (District 

36), also a special district and public agency, operated by the County Department of 

Public Works. It is the smallest retailer, accounting for less than 2 percent of the total 

water demand. 

2. Water Sources

The four retailers obtain the water they supply to consumers from two primary 

sources, local groundwater and the Agency’s imported water. 

The only groundwater source is the Santa Clara River Valley Groundwater Basin, 

East Subbasin (the Basin). The Basin is comprised of two aquifer systems, the Alluvium 

and the Saugus Formation. This groundwater supply alone cannot sustain the collective 

demand of the four retailers. (The Basin’s operational yield is estimated at 37,500 to 

55,000 acre-feet per year (AFY) in normal years, while total demand was projected at 

72,343 AFY for 2015, and 121,877 AFY in 2050.)

The groundwater basin, so far as the record shows, is in good operating condition,

with no long-term adverse effects from groundwater pumping. Such adverse effects 
4

(known as overdraft) could occur if the amount of water extracted from an aquifer were 

to exceed the amount of water that recharges the aquifer over an extended period. The 

retailers have identified cooperative measures to be taken, if needed, to ensure sustained 

use of the aquifer. These include the continued “conjunctive use” of imported 

supplemental water and local groundwater supplies, to maximize water supply from the 

two sources. Diversity of supply is considered a key element of reliable water service 

during dry years as well as normal and wet years. 

In 1997, four wells in the Saugus Formation were found to be contaminated with 

perchlorate, and in 2002 and 2005, perchlorate was detected in two wells in the 

Alluvium. All the wells were owned by the retailers, one of them by Newhall. During 

this period, Newhall and the two largest retailers (now owned or controlled by the 

Agency) increased their purchases of imported water significantly. 

3. Use of Imported Water

Until 1987, Newhall served its customers relying only on its groundwater rights.2

Since 1987, it has supplemented its groundwater supplies with imported water from the 

Agency. 

The amount of imported water Newhall purchases fluctuates from year to year. In 

the years before 1998, Newhall’s water purchases from the Agency averaged 11 percent 

of its water demand. During the period of perchlorate contamination (1998-2009), its 

imported water purchases increased to an average of 52 percent of its total demand. 

Since then, Newhall’s use of imported water dropped to 23 percent, and as of 2012, 

 

2 Newhall has appropriative water rights that arise from California’s first-in-timefirst-in-right allocation of limited groundwater supplies. (See El Dorado Irrigation Dist. 

v. State Water Resources Control Board (2006) 142 Cal.App.4th 937, 961 [“ ‘[T]he 

appropriation doctrine confers upon one who actually diverts and uses water the right to 

do so provided that the water is used for reasonable and beneficial uses and is surplus to 

that used by riparians or earlier appropriators.’ ”]; City of Barstow v. Mojave Water 

Agency (2000) 23 Cal.4th 1224, 1241 [“ ‘As between appropriators, . . . the one first in 

time is the first in right, and a prior appropriator is entitled to all the water he needs, up to 

the amount he has taken in the past, before a subsequent appropriator may take any 

[citation].’ ”].)
5

Newhall received about 25 percent of its total water supply from the Agency. The overall 

average since it began to purchase imported water in 1987, Newhall tells us, is 

30 percent.

The other retailers, by contrast, rely more heavily on the Agency’s imported water. 

Agency-owned Santa Clarita Water Division is required by statute to meet at least half of 

its water demand using imported water. (See Wat. Code Appen., § 103-15.1, subd. (d).) 

Agency-controlled Valencia Water Company also meets almost half its demand with 

imported water. 

4. The Agency’s Related Powers and Duties

As noted above, the Agency’s primary source of imported water is the State Water 

Project. The Agency purchases that water under a contract with the Department of Water 

Resources. The Agency also acquires water under an acquisition agreement with the 

Buena Vista Water Storage District and the Rosedale-Rio Bravo Water Storage District,

and other water sources include recycled water and water stored through groundwater 

banking agreements. Among the Agency’s powers are the power to “[s]tore and recover 

water from groundwater basins” (Wat. Code Appen., § 103-15.2, subd. (b)), and “[t]o 

restrict the use of agency water during any emergency caused by drought, or other 

threatened or existing water shortage, and to prohibit the wastage of agency water”

(§ 103-15, subd. (k)). 

In addition, and as pertinent here, the Agency may “[d]evelop groundwater 

management plans within the agency which may include, without limitation, 

conservation, overdraft protection plans, and groundwater extraction charge plans . . . .” 

(Wat. Code Appen., § 103-15.2, subd. (c).) The Agency has the power to implement 

such plans “subject to the rights of property owners and with the approval of the retail 

water purveyors and other major extractors of over 100 acre-feet of water per year.” 

(Ibid.) 

In 2001, the Legislature required the Agency to begin preparation of a 

groundwater management plan, and provided for the formation of an advisory council 

consisting of representatives from the retail water purveyors and other major extractors. 
6

(Wat. Code Appen., § 103-15.1, subd. (e)(1)&(2)(A).) The Legislature required the 

Agency to “regularly consult with the council regarding all aspects of the proposed 

groundwater management plan.” (Id., subd. (e)(2)(A).)

Under this legislative authority, the Agency spearheaded preparation of the 2003 

Groundwater Management Plan for the Basin, and more recently the 2010 Santa Clarita 

Valley Urban Water Management Plan. These plans were approved by the retailers, 

including Newhall. 

The 2003 Groundwater Management Plan states the overall management 

objectives for the Basin as: (1) development of an integrated surface water, groundwater, 

and recycled water supply to meet existing and projected demands for municipal, 

agricultural and other water uses; (2) assessment of groundwater basin conditions “to 

determine a range of operational yield values that will make use of local groundwater 

conjunctively with [State Water Project] and recycled water to avoid groundwater 

overdraft”; (3) preservation of groundwater quality; and (4) preservation of interrelated 

surface water resources. The 2010 Santa Clarita Valley Urban Water Management Plan,

as the trial court described it, is “an area-wide management planning tool that promotes 

active management of urban water demands and efficient water usage by looking to longrange planning to ensure adequate water supplies to serve existing customers and future 

demands . . . .” 

5. The Agency’s Wholesale Water Rates

The board of directors of the Agency fixes its water rates, “so far as practicable, 

[to] result in revenues that will pay the operating expenses of the agency, . . . provide for 

the payment of the cost of water received by the agency under the State Water Plan, 

provide for repairs and depreciation of works, provide a reasonable surplus for 

improvements, extensions, and enlargements, pay the interest on any bonded debt, and 

provide a sinking or other fund for the payment of the principal of that bonded debt . . . .” 

(Wat. Code Appen., § 103-24, subd. (a).) The Agency’s operating costs include costs for 

management, administration, engineering, maintenance, water quality compliance, water 

resources, water treatment operations, storage and recovery programs, and studies. 
7

Before the rate changes at issue here, the Agency had a “100 percent variable” rate 

structure. That means it charged on a per acre-foot basis for the imported water sold, 

known as a “volumetric” rate. Thus, as of January 1, 2012, retailers were charged $487 

per acre-foot of imported water, plus a $20 per acre-foot charge for reserve funding. 

Because of fluctuations in the demand for imported water (such as during the 

perchlorate contamination period), the Agency’s volumetric rates result in fluctuating, 

unstable revenues. The Agency engaged consultants to perform a comprehensive 

wholesale water rate study, and provide recommendations on rate structure options. The 

objective was a rate structure that would provide revenue sufficiency and stability to the 

Agency, provide cost equity and certainty to the retailers, and enhance conjunctive use of 

the sources of water supply and encourage conservation. As the Agency’s consultants 

put it, “[t]wo of the primary objectives of cost of service water rates are to ensure the 

utility has sufficient revenue to cover the costs of operating and maintaining the utility in 

a manner that will ensure long term sustainability and to ensure that costs are recovered 

from customers in a way that reflects the demands they place on the system.” 

The general idea was a rate structure with both volumetric and fixed components. 

Wholesale rate structures that include both a fixed charge component (usually calculated 

to recover all or a portion of the agency’s fixed costs of operating, maintaining and 

delivering water) and a volumetric component (generally calculated based on the cost of 

purchased water, and sometimes including some of the fixed costs) are common in the 

industry. 

6. The Challenged Rates

The Agency’s consultants presented several rate structure options. In the end, the 

option the Agency chose (the challenged rates) consisted of two components. The first 

component is a fixed charge based on each retailer’s three-year rolling average of total 

water demand (that is, its demand for the Agency’s imported water and for groundwater 

not supplied by the Agency). This fixed charge is calculated by “divid[ing] the Agency’s 

total fixed revenue for the applicable fiscal year . . . by the previous three-year average of 

total water demand of the applicable Retail Purveyor to arrive at a unit cost per acre 
8

foot.” The Agency would recover 80 percent of its costs through the fixed component of 

the challenged rates. The second component of the Agency’s rate is a variable charge, 

based on a per acre foot charge for imported water.3

The rationale for recovering the Agency’s fixed costs in proportion to the retailers’ 

total water demand, rather than their demand for imported water, is this (as described in 

the consultants’ study):

“This rate structure meets the Agency’s objective of promoting resource 

optimization, conjunctive use, and water conservation. Since the fixed cost is allocated 

on the basis of each retail purveyor’s total demand, if a retail purveyor conserves water, 

then its fixed charge will be reduced. Additionally, allocating the fixed costs based on 

total water demand recognizes that imported water is an important standby supply that is 

available to all retail purveyors, and is also a necessary supply to meet future water 

demand in the region, and that there is a direct nexus between groundwater availability 

and imported water use – i.e., it allocates the costs in a manner that bears a fair and 

reasonable relationship to the retail purveyors’ burdens on and benefits from the 

Agency’s activities in ensuring that there is sufficient water to meet the demands of all of 

the retail purveyors and that the supply sources are responsibly managed for the benefits 

of all of the retail purveyors.”

The rationale continues: “Moreover, the Agency has taken a leadership role in 

maintaining the health of the local groundwater basin by diversifying the Santa Clarita 

Valley’s water supply portfolio, as demonstrated in the 2003 Groundwater Management

Plan and in resolving perchlorate contamination of the Saugus Formation aquifer. Thus, 

since all retail purveyors benefit from imported water and the Agency’s activities, they 

should pay for the reasonable fixed costs of the system in proportion to the demand (i.e. 

 

3 There was also a $20 per acre foot reserve charge to fund the Agency’s operating 

reserves, but the Agency reports in its opening brief that it suspended implementation of 

that charge as of July 1, 2013, when reserve fund goals were met earlier than anticipated. 
9

burdens) they put on the total water supply regardless of how they utilize individual 

sources of supply.” 

The Agency’s rate study showed that, during the first year of the challenged rates 

(starting July 1, 2013), Newhall would experience a 67 percent increase in Agency 

charges, while Agency controlled retailers Valencia Water Company and Santa Clarita 

Water Division would see reductions of 1.9 percent and 10 percent, respectively. District 

36 would have a 0.8 percent increase. The rate study also indicated that, by 2050, the 

impact of the challenged rates on Newhall was expected to be less than under the thencurrent rate structure, while Valencia Water Company was expected to pay more.

Newhall opposed the challenged rates during the ratemaking process. Its 

consultant concluded the proposed structure was not consistent with industry standards; 

would provide a nonproportional, cross-subsidization of other retailers; and did not fairly 

or reasonably reflect the Agency’s costs to serve Newhall. Newhall contended the rates 

violated the California Constitution and other California law. It proposed a rate structure 

that would base the Agency’s fixed charge calculation on the annual demand for 

imported water placed on the Agency by each of its four customers, using a three-year 

rolling average of past water deliveries to each retailer. 

In February 2013, the Agency’s board of directors adopted the challenged rates, 

effective July 1, 2013. 

7. This Litigation

Newhall sought a writ of mandate directing the Agency to rescind the rates, to 

refund payments made under protest, to refrain from charging Newhall for its imported 

water service “with respect to the volume of groundwater Newhall uses or other services 

[the Agency] does not provide Newhall,” and to adopt a new, lawful rate structure. 

Newhall contended the rates were not proportionate to Newhall’s benefits from, and 

burdens on, the Agency’s service, and were therefore invalid under Proposition 26, 

Proposition 13, Government Code section 54999.7, and the common law of utility 

ratemaking. 
10

The trial court granted Newhall’s petition, finding the rates violated Proposition 

26. The court concluded the Agency had no authority to impose rates based on the use of 

groundwater that the Agency does not provide, and that conversely, Newhall’s use of its 

groundwater rights does not burden the Agency’s system for delivery of imported water. 

Thus the rates bore no reasonable relationship to Newhall’s burden on, or benefit 

received from, the Agency’s service. The trial court also found the rates violated 

Government Code section 54999.7 (providing that a fee for public utility service “shall 

not exceed the reasonable cost of providing the public utility service” (Gov. Code, 

§ 54999.7, subd. (a)), and violated common law requiring utility charges to be fair, 

reasonable and proportionate to benefits received by ratepayers. The court ordered the 

Agency to revert to the rates previously in effect until the adoption of new lawful rates, 

and ordered it to refund to Newhall the difference between the monies paid under the 

challenged rates and the monies that would have been paid under the previous rates. 

Judgment was entered on July 28, 2014, and the Agency filed a timely notice of 

appeal.

DISCUSSION

The controlling issue in this case is whether the challenged rates are a tax or a fee 

under Proposition 26. 

1. The Standard of Review

We review de novo the question whether the challenged rates comply with 

constitutional requirements. (Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982, 

989-990 (Griffith I).) We review the trial court’s resolution of factual conflicts for 

substantial evidence. (Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 

892, 916.) 

2. The Governing Principles

All taxes imposed by any local government are subject to voter approval. (Art. 

XIII C, § 2.) Proposition 26, adopted in 2010, expanded the definition of a tax. A “tax” 

now includes “any levy, charge, or exaction of any kind imposed by a local government,” 
11

with seven exceptions. (Id., § 1, subd. (e).) This case concerns one of those seven 

exceptions. 

Under Proposition 26, the challenged rates are not a tax, and are not subject to 

voter approval, if they are “[a] charge imposed for a specific government service or 

product provided directly to the payor that is not provided to those not charged, and 

which does not exceed the reasonable costs to the local government of providing the 

service or product.” (Art. XIII C, § 1, subd. (e)(2).) The Agency “bears the burden of 

proving by a preponderance of the evidence” that its charge “is not a tax, that the amount 

is no more than necessary to cover the reasonable costs of the governmental activity, and 

that the manner in which those costs are allocated to a payor bear a fair or reasonable 

relationship to the payor’s burdens on, or benefits received from, the governmental 

activity.” (Id., subd. (e), final par.)

3. This Case

It is undisputed that the Agency’s challenged rates are designed “to recover all of 

its fixed costs via a fixed charge,” and not to generate surplus revenue. Indeed, Newhall 

recognizes the Agency’s right to impose a fixed water-rate component to recover its fixed 

costs. The dispute here is whether the fixed rate component may be based in significant 

part on the purchaser’s use of a product – groundwater – not provided by the Agency. 

We conclude the Agency cannot, consistent with Proposition 26, base its 

wholesale water rates on the retailers’ use of groundwater, because the Agency does not 

supply groundwater. Indeed, the Agency does not even have the statutory authority to 

regulate groundwater, without the consent of the retailers (and other major groundwater 

extractors). As a consequence, basing its water rates on groundwater it does not provide 

violates Proposition 26 on two fronts. 

First, the rates violate Proposition 26 because the method of allocation does not 

“bear a fair or reasonable relationship to the payor’s burdens on, or benefits received 

from,” the Agency’s activity. (Art. XIII C, § 1, subd. (e), final par.) (We will refer to 

this as the reasonable cost allocation or proportionality requirement.)
12

Second, to the extent the Agency relies on its groundwater management activities 

to justify including groundwater use in its rate structure, the benefit to the retailers from 

those activities is at best indirect. Groundwater management activities are not a “service 

. . . provided directly to the payor that is not provided to those not charged” (art. XIII C, 

§ 1, subd. (e)(2)), but rather activities that benefit the Basin as a whole, including other 

major groundwater extractors that are not charged for those services. 

For both these reasons, the challenged rates cannot survive scrutiny under 

Proposition 26. The Agency resists this straightforward conclusion, proffering two 

principal arguments, melded together. The first is that the proportionality requirement is 

measured “collectively,” not by the burdens on or benefits received by the individual 

purveyor. The second is that the “government service or product” the Agency provides 

to the four water retailers consists not just of providing wholesale water, but also of 

“managing the Basin water supply,” including “management . . . of the Basin’s 

groundwater.” These responsibilities, the Agency argues, make it reasonable to set rates 

for its wholesale water service by “tak[ing] into account the entire Valley water supply 

portfolio and collective purveyor-benefits of promoting conjunctive use, not just the 

actual amount of Agency imported water purchased by each Purveyor . . . .” 

Neither claim has merit, and the authorities the Agency cites do not support its 

contentions.

a. Griffin I and the proportionality requirement

It seems plain to us, as it did to the trial court, that the demand for a product the 

Agency does not supply – groundwater – cannot form the basis for a reasonable cost 

allocation method: one that is constitutionally required to be proportional to the benefits 

the rate payor receives from (or the burden it places on) the Agency’s activity. The 

Agency’s contention that it may include the demand for groundwater in its rate structure 

because the proportionality requirement is measured “collectively,” not by the burdens on 

or benefits to the individual retail purveyor, is not supported by any pertinent authority. 

In contending otherwise, the Agency relies on, but misunderstands, Griffith I and 

other cases stating that proportionality “ ‘is not measured on an individual basis,’ ” but 
13

rather “ ‘collectively, considering all rate payors,’ ” and “ ‘need not be finely calibrated 

to the precise benefit each individual fee payor might derive.’ ” (Griffith I, supra, 207 

Cal.App.4th at p. 997, quoting California Farm Bureau Federation v. State Water 

Resources Control Bd. (2011) 51 Cal.4th 421, 438 [discussing regulatory fees under the 

Water Code and Proposition 13].) As discussed post, these cases do not apply here, for 

one or more reasons. Griffith I involves a different exemption from Proposition 26, and 

other cases involve Proposition 218, which predated Proposition 26 and has no direct 

application here. In addition to these distinctions – which do make a difference – the 

cases involved large numbers of payors, who could rationally be (and were) placed in 

different usage categories, justifying different fees for different classes of payors. 

In Griffith I, the defendant city imposed an annual inspection fee for all residential 

rental properties in the city. The court rejected a claim that the inspection fee was a tax 

requiring voter approval under Proposition 26. (Griffith I, supra, 207 Cal.App.4th at p. 

987.) Griffith I involves another of the seven exemptions in Proposition 26, the 

exemption for regulatory fees – charges imposed for the regulatory costs of issuing 

licenses, performing inspections, and the like. (Art. XIII C, § 1, subd. (e)(3) [expressly 

excepting, from the “tax” definition, a “charge imposed for the reasonable regulatory 

costs to a local government for . . . performing inspections”].) 

The inspection fees in Griffith I met all the requirements of Proposition 26. The 

city’s evidence showed the fees did not exceed the approximate cost of the inspections. 

(Griffith I, supra, 207 Cal.App.4th at p. 997.) And the proportionality requirement of 

Proposition 26 was also met: “The fee schedule itself show[ed] the basis for the 

apportionment,” setting an annual registration fee plus a $20 per unit fee, with lower fees 

for “[s]elf-certifications” that cost the city less to administer, and greater amounts 

charged when reinspections were required. (Griffith I, at p. 997.) The court concluded: 

“Considered collectively, the fees are reasonably related to the payors’ burden upon the 

inspection program. The larger fees are imposed upon those whose properties require 

the most work.” (Ibid., italics added.) 
14

Griffith I did, as the Agency tells us, state that “ ‘the question of proportionality is 

not measured on an individual basis’ ” but rather “ ‘collectively, considering all rate 

payors.’ ” (Griffith I, supra, 207 Cal.App.4th at p. 997.) But, as mentioned, Griffith I

was considering a regulatory fee, not, as here, a charge imposed on four ratepayers for a 

“specific government service or product.” As Griffith I explained, “ ‘[t]he scope of a 

regulatory fee is somewhat flexible’ ” and “ ‘must be related to the overall cost of the 

governmental regulation,’ ” but “ ‘need not be finely calibrated to the precise benefit each 

individual fee payor might derive.’ ” (Ibid.) That, of course, makes perfect sense in the 

context of a regulatory fee applicable to numerous payors; indeed, it would be impossible 

to assess such fees based on the individual payor’s precise burden on the regulatory 

program. But the inspection fees were allocated by categories of payor, and were based

on the burden on the inspection program, with higher fees where more city work was 

required. 

Here, there are four payors, with no need to group them in classes to allocate costs. 

The Griffith I concept of measuring proportionality “collectively” simply does not apply.

Where charges for a government service or product are to be allocated among only four 

payors, the only rational method of evaluating their burdens on, or benefits received 

from, the governmental activity, is individually, payor by payor. And that is particularly 

appropriate considering the nature of the Proposition 26 exemption in question: charges 

for a product or service that is (and is required to be) provided “directly to the payor.” 

Under these circumstances, allocation of costs “collectively,” when the product is 

provided directly to each of the four payors, cannot be, and is not, a “fair or reasonable” 

allocation method. (Art. XIII C, § 1, subd. (e), final par.)

b. Griffith II – the proportionality requirement and related claims

In Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 

586 (Griffith II), the court concluded, among other things, that a groundwater 

augmentation charge complied with the proportionality requirement of Proposition 218. 

The Agency relies on Griffith II, asserting that the court applied the “concept of 

collective reasonableness with respect to rate allocations . . . .” Further, the case 
15

demonstrates, the Agency tells us, that its activities in “management . . . of the Basin’s 

groundwater” justify basing its rates on total water demand, because all four retailers 

benefit from having the Agency’s imported water available, even when they do not use it. 

Neither claim withstands analysis.

Griffith II involved a challenge under Proposition 218, so we pause to describe its 

relevant points. Proposition 218 contains various procedural (notice, hearing, and voting) 

requirements for the imposition by local governments of fees and charges “upon a parcel 

or upon a person as an incident of property ownership, including a user fee or charge for 

a property related service.” (Art. XIII D, § 2, subd. (e).) Fees or charges for water 

service (at issue in Griffith II) are exempt from voter approval (art. XIII D, § 6, subd. (c)), 

but substantive requirements apply. These include a proportionality requirement: that 

the amount of a fee or charge imposed on any parcel or person “shall not exceed the 

proportional cost of the service attributable to the parcel.” (Id., subd. (b)(3).) 

In Griffith II, the plaintiffs challenged charges imposed by the defendant water 

management agency on the extraction of groundwater (called a “groundwater 

augmentation charge”). The defendant agency had been created to deal with the issue of 

groundwater being extracted faster than it is replenished by natural forces, leading to 

saltwater intrusion into the groundwater basin. (Griffith II, supra, 220 Cal.App.4th at 

p. 590.) The defendant agency was specifically empowered to levy groundwater 

augmentation charges on the extraction of groundwater from all extraction facilities, 

“ ‘ “for the purposes of paying the costs of purchasing, capturing, storing, and 

distributing supplemental water for use within [defendant’s boundaries].” ’ ” (Id. at p. 

591.) The defendant’s strategy to do so had several facets, but its purpose was to reduce 

the amount of water taken from the groundwater basin by supplying water to some 

coastal users, with the cost borne by all users, “on the theory that even those taking water 

from [inland] wells benefit from the delivery of water to [coastal users], as that reduces 

the amount of groundwater those [coastal users] will extract [from their own wells], 

thereby keeping the water in [all] wells from becoming too salty.’ ” (Id. at pp. 590-591.)
16

Griffith II found the charge complied with the Proposition 218 requirement that 

the charge could not exceed the proportional costs of the service attributable to the parcel. 

(Griffith II, supra, 220 Cal.App.4th at pp. 600-601.) Proposition 218, the court 

concluded, did not require “a parcel-by-parcel proportionality analysis.” (Griffith II, at p. 

601.) The court found defendant’s “method of grouping similar users together for the 

same augmentation rate and charging the users according to usage is a reasonable way to 

apportion the cost of service,” and Proposition 218 “does not require a more finely 

calibrated apportion.” (Griffith II, at p. 601.) The augmentation charge “affects those on 

whom it is imposed by burdening them with an expense they will bear proportionately to 

the amount of groundwater they extract at a rate depending on which of three rate classes 

applies. It is imposed ‘across-the-board’ on all water extractors. All persons extracting 

water – including any coastal users who choose to do so – will pay an augmentation 

charge per acre-foot extracted. All persons extracting water and paying the charge will 

benefit in the continued availability of usable groundwater.” (Griffith II, at pp. 603-604.) 

The court rejected the plaintiffs’ claim the charge for groundwater extraction on 

their parcels was disproportionate because they did not use the agency’s services – that is, 

they did not receive delivered water, as coastal landowners did. This claim, the court 

said, was based on the erroneous premise that the agency’s only service was to deliver 

water to coastal landowners. The court pointed out that the defendant agency was created 

to manage the water resources for the common benefit of all water users, and the 

groundwater augmentation charge paid for the activities required to prepare and 

implement the groundwater management program. (Griffith II, supra, 220 Cal.App.4th at 

p. 600.) Further, the defendant agency “apportioned the augmentation charge among 

different categories of users (metered wells, unmetered wells, and wells within the 

delivered water zone).” (Id. at p. 601.) (The charges were highest for metered wells in 

the coastal zone, and there was also a per acre-foot charge for delivered water. (Id. at p. 

593 & fn. 4.))

We see nothing in Griffith II that assists the Agency here. The Agency focuses on 

the fact that the defendant charged the plaintiff for groundwater extraction even though 
17

the plaintiff received no delivered water, and on the court’s statement that the defendant 

was created to manage water resources for the common benefit of all water users. 

(Griffith II, supra, 220 Cal.App.4th at p. 600.) From this the Agency leaps to the 

erroneous conclusion that the rates here satisfy the proportionality requirement simply 

because all four retailers “benefit from having the Agency’s supplemental water supplies 

available,” even when they do not use them. This is a false analogy. In Griffith II, the 

defendant charged all groundwater extractors proportionately for extracting water (and 

had the power to do so), and charged for delivered water as well. Griffith II does not 

support the imposition of charges based on a product the Agency does not supply. 

We note further that in Griffith II, more than 1,900 parcel owners were subject to 

the groundwater augmentation charge, and they were placed in three different classes of 

water extractors and charged accordingly. (Griffith II, supra, 220 Cal.App.4th at pp. 593, 

601.) Here, there are four water retailers receiving the Agency’s wholesale water service, 

none of whom can reasonably be placed in a different class or category from the other 

three. In these circumstances, to say costs may be allocated to the four purveyors 

“collectively,” based in significant part on groundwater not supplied by the Agency, 

because “they all benefit” from the availability of supplemental water supplies, would 

effectively remove the proportionality requirement from Proposition 26. 

That we may not do. Proposition 26 requires by its terms an allocation method 

that bears a reasonable relationship to the payor’s burdens on or benefits from the 

Agency’s activity, which here consists of wholesale water service to be provided 

“directly to the payor.” In the context of wholesale water rates to four water agencies, 

this necessarily requires evaluation on a “purveyor by purveyor” basis. (Cf. Capistrano 

Taxpayers Assn., Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493, 1514 

(Capistrano) [“[w]hen read in context, Griffith [II] does not excuse water agencies from 

ascertaining the true costs of supplying water to various tiers of usage”; Griffith II’s 

“comments on proportionality necessarily relate only to variations in property location”; 

“trying to apply [Griffith II] to the [Proposition 218 proportionality] issue[] is fatally 

flawed”].)
18

The Agency’s claim that it is not charging the retailers for groundwater use, and 

its attempt to support basing its rates on total water demand by likening itself to the 

defendant agency in Griffith II, both fail as well. The first defies reason. Because the 

rates are based on total water demand, the more groundwater a retailer uses, the more it 

pays under the challenged rates. The use of groundwater demand in the rate structure 

necessarily means that, in effect, the Agency is charging for groundwater use. 

The second assertion is equally mistaken. The differences between the Agency 

and the defendant in Griffith II are patent. In Griffith II, the defendant agency was 

created to manage all water resources, and specifically to deal with saltwater intrusion 

into the groundwater basin. The Agency here was not. It was created to acquire water 

and to “provide, sell, and deliver” it. It is authorized to develop and implement 

groundwater management plans only with the approval of the retail water purveyors (and 

other major groundwater extractors). In other words, while the Agency functions as the 

lead agency in developing and coordinating groundwater management plans, its only 

authority over groundwater, as the trial court found, is a shared responsibility to develop 

those plans. Further, in Griffith II, the defendant agency was specifically empowered to 

levy groundwater extraction charges for the purpose of purchasing supplemental water. 

The Agency here was not. As the trial court here aptly concluded, Griffith II “does not 

aid [the Agency] for the simple reason that [the Agency] has no comprehensive authority 

to manage the water resources of the local groundwater basin and levy charges related to 

groundwater.”4

Finally, the Agency insists that it “must be allowed to re-coup its cost of service,” 

and that the practice of setting rates to recover fixed expenses, “irrespective of a 

customer’s actual consumption,” was approved in Paland v. Brooktrails Township 

 

4 The trial court also observed that, “[a]part from [the Agency’s] lack of authority to 

supply or manage Basin groundwater, Newhall correctly notes that [the Agency] has 

presented no evidence of its costs in maintaining the Basin.” 
19

Community Services Dist. Bd. of Directors (2009) 179 Cal.App.4th 1358 (Paland). 

Paland has no application here.

Paland involved Proposition 218. As we have discussed, Proposition 218 governs 

(among other things) “property related fees and charges” on parcels of property. Among 

its prohibitions is any fee or charge for a service “unless that service is actually used by, 

or immediately available to, the owner of the property in question.” (Art. XIII D, § 6, 

subd. (b)(4).) The court held that a minimum charge, imposed on parcels of property 

with connections to the district’s utility systems, for the basic cost of providing water 

service, regardless of actual use, was “a charge for an immediately available propertyrelated water or sewer service” within the meaning of Proposition 218, and not an 

assessment requiring voter approval. (Paland, supra, 179 Cal.App.4th at p. 1362; see id. 

at p. 1371 [“Common sense dictates that continuous maintenance and operation of the 

water and sewer systems is necessary to keep those systems immediately available to 

inactive connections like [the plaintiff’s].”].)

We see no pertinent analogy between Paland and this case. This case does not 

involve a minimum charge imposed on all parcels of property (or a minimum charge for 

standing ready to supply imported water). Newhall does not contest the Agency’s right 

to charge for its costs of standing ready to provide supplemental water, and to recoup all 

its fixed costs. The question is whether the Agency may recoup those costs using a cost 

allocation method founded on the demand for groundwater the Agency does not supply, 

and is not empowered to regulate without the consent of groundwater extractors. The 

answer under Proposition 26 is clear: it may not. Paland does not suggest otherwise.

5

 

5 The parties refer to other recent authorities to support their positions in this case. 

We may not rely on one of them, because the Supreme Court has granted a petition for 

review. (City of San Buenaventura v. United Water Conservation District (2015) 235 

Cal.App.4th 228, review granted June 24, 2015, S226036.) The Agency cites the other 

case extensively in its reply brief, but we see nothing in that case to suggest that the 

challenged rates here comply with Proposition 26. (Great Oaks Water Co. v. Santa Clara 

Valley Water District 242 Cal.App.4th 1187 (Great Oaks).) 
20

c. Other claims – conservation and “conjunctive use”

The Agency attempts to justify the challenged rates by relying on the conservation 

mandate in the California Constitution, pointing out it has a constitutional obligation to 

encourage water conservation. (Art. X, § 2 [declaring the state’s water resources must 

“be put to beneficial use to the fullest extent of which they are capable, and that the waste 

or unreasonable use or unreasonable method of use of water [must] be prevented”].) The 

challenged rates comply with this mandate, the Agency contends, because reducing total 

water consumption will result in lower charges, and the rates encourage “a coordinated 

use of groundwater and supplemental water” (conjunctive use). This argument, too, 

misses the mark.

 

The Agency’s brief fails to describe the circumstances in Great Oaks. There, a 

water retailer challenged a groundwater extraction fee imposed by the defendant water 

district. Unlike this case, the defendant in Great Oaks was authorized by statute to 

impose such fees, and its major responsibilities included “preventing depletion of the 

aquifers from which [the water retailer] extracts the water it sells.” (Great Oaks, supra, 

242 Cal.App.4th at p. 1197.) The Court of Appeal, reversing a judgment for the plaintiff, 

held (among other things) that the fee was a property-related charge, and therefore 

subject to some of the constraints of Proposition 218, but was also a charge for water 

service, and thus exempt from the requirement of voter ratification. (Great Oaks, at p. 

1197.) The trial court’s ruling in Great Oaks did not address the plaintiff’s contentions 

that the groundwater extraction charge violated three substantive limitations of

Proposition 218, and the Court of Appeal ruled that one of those contentions (that the 

defendant charged more than was required to provide the property related service on 

which the charge was predicated) could be revisited on remand. The others were not 

preserved in the plaintiff’s presuit claim, so no monetary relief could be predicated on 

those theories. (Great Oaks, at pp. 1224, 1232-1234.) 

The Agency cites Greak Oaks repeatedly, principally for the statements that the 

“provision of alternative supplies of water serves the long-term interests of extractors by 

reducing demands on the groundwater basin and helping to prevent its depletion,” and 

that it was not irrational for the defendant water district “to conclude that reduced 

demands on groundwater supplies benefit retailers by preserving the commodity on 

which their long-term viability, if not survival, may depend.” (Great Oaks, supra, 242 

Cal.App.4th at pp. 1248-1249.) These statements, with which we do not disagree, have 

no bearing on this case, and were made in connection with the court’s holding that the 

trial court erred in finding the groundwater extraction charge violated the statute that 

created and empowered the defendant water district. (Id. at pp. 1252-1253.) 
21

Certainly the Agency may structure its rates to encourage conservation of the 

imported water it supplies. (Wat. Code, § 375, subd. (a) [public entities supplying water 

at wholesale or retail may “adopt and enforce a water conservation program to reduce the 

quantity of water used by [its customers] for the purpose of conserving the water supplies 

of the public entity”]. But the Agency has no authority to set rates to encourage 

conservation of groundwater it does not supply. Moreover, article X’s conservation 

mandate cannot be read to eliminate Proposition 26’s proportionality requirement. (See 

City of Palmdale v. Palmdale Water District (2011) 198 Cal.App.4th 926, 936-937 

[“California Constitution, article X, section 2 is not at odds with article XIII D 

[Proposition 218] so long as, for example, conservation is attained in a manner that ‘shall 

not exceed the proportional cost of the service attributable to the parcel.’ ”]; see id. at p. 

928 [district failed to prove its water rate structure complied with the proportionality 

requirement of Proposition 218]; see also Capistrano, supra, 235 Cal.App.4th at p. 1511, 

quoting City of Palmdale with approval.)

The Agency also insists that basing its rates only on the demand for the imported 

water it actually supplies – as has long been the case – would “discourage users from 

employing conjunctive use . . . .” The Agency does not explain how this is so, and we are 

constrained to note that, according to the Agency’s own 2003 Groundwater Management 

Plan, Newhall and the other retailers “have been practicing the conjunctive use of 

imported surface water and local groundwater” for many years. And, according to that 

plan, the Agency and retailers have “a historical and ongoing working relationship . . . to 

manage water supplies to effectively meet water demands within the available yields of 

imported surface water and local groundwater.” 

In connection, we assume, with its conjunctive use rationale, the Agency filed a 

request for judicial notice, along with its reply brief. It asked us to take notice of three 

documents and “the facts therein concerning imported water use and local groundwater 

production” by Newhall and the other water retailers. The documents are the 2014 and 

2015 Water Quality Reports for the Santa Clarita Valley, and a water supply utilization 

table from the 2014 Santa Clarita Valley Water Report published in June 2015. All of 
22

these, the Agency tells us, are records prepared by the Agency and the four retailers, after 

the administrative record in this case was prepared. The documents “provide further 

support” as to the “cooperative efforts of the Agency and the Purveyors in satisfying 

long-term water supply needs,” and “provide context and useful background to aid in the 

Court’s understanding of this case.” The Agency refers to these documents in its reply 

brief, pointing out that since 2011, Newhall has increased its imported water purchases 

because of the impact of the current drought on certain of its wells, while retailer 

Valencia Water Company increased groundwater pumping and purchased less imported 

water in 2014. These cooperative efforts, the Agency says, “reflect the direct benefit to 

Newhall of having an imported water supply available to it, whether or not it maximizes 

use of imported water in a particular year.” 

We deny the Agency’s request for judicial notice. We see no reason to depart 

from the general rule that courts may not consider evidence not contained in the 

administrative record. (Western States Petroleum Assn. v. Superior Court (1995) 9 

Cal.4th 559, 564; cf. id. at p. 578 [the exception to the rule in administrative proceedings, 

for evidence that could not have been produced at the hearing through the exercise of 

reasonable diligence, applies in “rare instances” where the evidence in question existed at 

the time of the decision, or in other “unusual circumstances”].) Denial is particularly 

appropriate where judicial notice has been requested in support of a reply brief to which 

the opposing party has no opportunity to respond, and where the material is, as the 

Agency admits, “further support” of evidence in the record, providing “context and useful 

background.” These are not unusual circumstances. 

Returning to the point, neither conservation mandates nor the Agency’s desire to 

promote conjunctive use – an objective apparently shared by the retailers – permits the 

Agency to charge rates that do not comply with Proposition 26 requirements. Using 

demand for groundwater the agency does not supply to allocate its fixed costs may 

“satisf[y] the Agency’s constitutional obligations . . . to encourage water conservation,” 
23

but it does not satisfy Proposition 26, and it therefore cannot stand.6(Cf. Capistrano, 

supra, 235 Cal.App.4th at pp. 1511, 1498 [conservation is to be attained in a manner not 

exceeding the proportional cost of service attributable to the parcel under Proposition 

218; the agency failed to show its tiered rates complied with that requirement].)

d. Other Proposition 26 requirements

We have focused on the failure of the challenged rates to comply with the 

proportionality requirement of Proposition 26. But the rates do not withstand scrutiny for 

another reason as well. Proposition 26 exempts the Agency’s charges from voter 

approval only if the charge is imposed “for a specific government service or product 

provided directly to the payor that is not provided to those not charged . . . .” (Italics 

added.) The only “specific government service or product” the Agency provides directly 

to the retailers, and not to others, is imported water. As the trial court found: the Agency 

“does not provide Newhall groundwater. It does not maintain or recharge aquifers. It 

does not help Newhall pump groundwater. Nor does it otherwise contribute directly to 

the natural recharge of the groundwater Newhall obtains from its wells.” 

The groundwater management activities the Agency does provide – such as its 

leadership role in creating groundwater management plans and its perchlorate 

remediation efforts – are not specific services the Agency provides directly to the 

retailers, and not to other groundwater extractors in the Basin. On the contrary, 

groundwater management services redound to the benefit of all groundwater extractors in 

the Basin – not just the four retailers. Indeed, implementation of any groundwater 

 

6 The Agency also cites Brydon v. East Bay Municipal Utility District (1994) 24 

Cal.App.4th 178 for the principle that, in pursuing a constitutionally and statutorily 

mandated conservation program, “cost allocations . . . are to be judged by a standard of 

reasonableness with some flexibility permitted to account for system-wide complexity.” 

(Id. at p. 193.) But Brydon predated both Proposition 218 and Proposition 26. (See 

Capistrano, supra, 235 Cal.App.4th at pp. 1512-1513 [Brydon “simply has no application 

to post-Proposition 218 cases”; “it seems safe to say that Brydon itself was part of the 

general case law which the enactors of Proposition 218 wanted replaced with stricter 

controls on local government discretion”].)
24

management plan is “subject to the rights of property owners and with the approval of the 

retail water purveyors and other major extractors of over 100 acre-feet of water per 

year.” (Wat. Code Appen., § 103-15.2, subds. (b)&(c), italics added.)

Certainly the Agency may recover through its water rates its entire cost of service 

– that is undisputed. The only question is whether those costs may be allocated, 

consistent with Proposition 26, based in substantial part on groundwater use. They may 

not, because the Agency’s groundwater management activities plainly are not a service 

“that is not provided to those not charged . . . .” (Art. XIII C, § 1, subd. (e)(2).)

In light of our conclusion the challenged rates violate Proposition 26, we need not 

consider the Agency’s contention that the rates comply with Government Code 

section 54999.7 and the common law. Nor need we consider the propriety of the remedy 

the trial court granted, as the Agency raises no claim of error on that point.

DISPOSITION

The judgment is affirmed. Plaintiff shall recover its costs on appeal.

GRIMES, J.

WE CONCUR:

BIGELOW, P. J. FLIER, J.