Judge likes city's sewer settlement

By Matthew T. Hall
San Diego Union-Tribune May 19, 2007

SAN DIEGO - A Superior Court judge all but approved a $40 million settlement yesterday between San Diego and consumer advocate Michael Shames, who sued the city three years ago for allowing single-family sewer customers to subsidize the bills of businesses.

But a new dispute has emerged over who will ensure that the city bills its water and sewer ratepayers fairly in the future.

At a hearing yesterday, Judge Ronald Prager embraced the settlement, which includes $5 million for attorneys' fees, and said he would formalize it next week. He urged Shames to resolve his remaining dispute with city officials or to file a formal request to have the judge settle the issue.

Shames wants the watchdog group he heads, the Utility Consumers' Action Network, to monitor city water and sewer rates, but Mayor Jerry Sanders believes the duty should fall to a city oversight panel he is forming.

Shames says the mayor's proposal would violate the settlement, which calls for an independent, nonprofit organization to protect customer interests.

Sanders countered that his committee would be "very independent."

He said yesterday that he expects to appoint people to the Independent Rates Oversight Committee in coming weeks. It will replace a similar volunteer group that lacked the financial background to catch the billing inequities that Shames' lawyers contend took place from 1994 to 2004.

Before the City Council ended the practice, San Diego's multifamily, commercial and industrial sewer customers paid proportionally less than single-family customers because the city collected sewer fees that didn't vary based on the amount of organic pollutants in the waste.

Overview

Background: A lawsuit was filed three years ago against the city of San Diego for sewer billing inequities.

What's changing: A Superior Court judge said yesterday that he will approve a $40 million settlement next week awarding rebates to single-family customers.

The future: A dispute persists over how to prevent future billing issues.

Under the settlement, San Diego's 223,000 single-family sewer customers are projected to receive on average less than $200 in rebates. Comparatively, City Attorney Michael Aguirre found that two companies, Kelco and ISP Alginates Inc., avoided paying the city about $226,000 a month, or $2.7 million annually.

Sanders outlined his plans for a new city committee to watch over water and sewer system funds and bond proceeds a few days after the Shames settlement was made public in November. The mayor said then that the panel wouldn't interfere with Shames' bid to empower a nonprofit organization as a utility watchdog.

Yesterday, he defended his reversal.

"At that time, I don't ever recall Shames mentioning UCAN should be the oversight board," Sanders said. "In fact, that was left very open. And IROC as we have now started to constitute it, I think is a perfect vehicle for that."

Contrary to Sanders' recollection, Shames said in November that he might ask UCAN's board to serve as a watchdog over water and sewer rates if no other nonprofit organization volunteered. Ultimately, no one else stepped forward.

Per terms of the settlement, the watchdog will be able to solicit contributions through regular inserts in customer bills, three times a year for five years, to hire experts to evaluate future rate cases.

UCAN, whose focus has been on gasoline, telecommunications and energy, was established in the 1980s with solicitations in electricity bills.

The Shames settlement temporarily causes multifamily, commercial and industrial sewer customers to pay higher rates than single-family customers to make up for the time they shouldered less of the load. Under a complex formula used because state law mandates proportional rate increases, rates will rise for all sewer users, then single-family customers will get credits to cancel out the increase and a rebate on top of that.

The initial deal called for the city to shell out the entire sum to customers in four years, but the judge eliminated that time frame at the city's request yesterday when told it may take longer to distribute the money.

The settlement was reached through a mediator, who recommended that Shames' attorneys at Krause Kalfayan Benink & Slavens LLP get 12.5 percent of the award, a total that Prager yesterday said seemed "very reasonable."

"But for these attorneys, this whole situation may never have come to light," the judge said. "Time would have gone by and it would have been too late."