120-Day Statute of Limitations for New or Increased California Water and Sewer Rates

Best Best & Krieger LLP

Best Best & Krieger LLP

SB 323 Signed Into Law and Effective Jan. 1

A challenge to new or increased California water or sewer rates must be brought within 120 days pursuant to Senate Bill 323, which was signed into law this week. SB 323 applies to rates for both retail and wholesale water and sewer fees adopted or increased after January 1, 2022. How will this impact local agencies across the state?

Agency Liability
Before SB 323 was signed and enacted, a plaintiff seeking to challenge water or sewer rates could generally bring an action for a refund for amounts paid within the preceding year, or could seek to invalidate the rates within 3 years of payment. This meant, for example, that an agency could be sued many years after water or sewer rates were adopted so long as those rates are still imposed, and even for some time after new rates are adopted.

SB 323 Specifics
With the enactment of SB 323, plaintiffs must bring a challenge to new or increased water or sewer rates within 120 days of the effective date or date of final passage, adoption, or approval of the ordinance or resolution adopting the water or sewer rate. Proposition 218 requires local agencies to mail a notice of proposed new or increased water or sewer rate to property owners and tenants directly responsible for the bill at least 45 days before the public hearing on the rate increases. In order to take advantage of SB 323’s statute of limitations for retail water or sewer rates, the notice must include a statement that there is a 120-day statute of limitations for challenging the rates. No such requirement applies to wholesale rates.

SB 323 does not apply where there is another statute that establishes a more specific time or procedure for challenging water or sewer service rates. The statute of limitations also does not apply to legal actions arising from billing errors, such as overbilling resulting from incorrect implementation of otherwise validly approved water or sewer service rates.

Agency Relief
SB 323 is consistent with other statutes of limitations governing other types of fees, including capacity fees and certain types of electric fees. The perpetual risk of challenge causes uncertainty and prevents public agencies from effectively planning for the future, while placing vital public revenues at risk. Together, these statutes afford relief to agencies furnishing necessary public services by providing finality for legal exposure to rate challenges.

Disclosure: SB 323 was sponsored by the Association of California Water Agencies (ACWA) and authored by Sen. Anna Caballero (D-Salinas). BB&K Partner Lutfi Kharuf, who sits on ACWA’s Legal Affairs Committee and authored this Legal Alert, assisted with this bill. Nearly 100 public agencies were part of a coalition in support of SB 323.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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