Spokane’s water rates for customers outside city limits must be “just and reasonable,” court rules amid yearslong fight

If the city of Spokane wants to charge 50% more to deliver water to customers outside city limits, it needs to show its math, an appellate court ruled Tuesday.

For city water, there are essentially two classes of customer: those inside the city, and those outside the city. For residential customers, out-of-city rates are 50% higher. Commercial rates are more complex but also about 50% higher.

Spokane continues to fight lawsuits that claim the city has for decades overcharged thousands of water customers who live outside city limits and cannot show how those higher costs are necessary or proportionate to the cost to deliver that water.

On Tuesday, a state appeals court ruled that the city is bound by state law to set rates that are “just and reasonable,” disagreeing with the city’s assertion that the municipality could operate under a different law that did not include this requirement. Under this restriction, the city cannot charge one customer more than another for providing substantially the same service.

More than 92% of Spokane’s water customers are located within city limits, but the city has the right to sell its water to residential and commercial customers in an area stretching outside city limits. While Spokane legally can’t pick up the garbage of a county resident and charge for the service, the city can sell its water in an area outside of its borders. Customers – or, often, developers – can enter into an agreement with the city to purchase city water.

It doesn’t matter if the customer is a resident next door to a pumping station or on top of a hill on the city’s furthest edge, both homes pay the same rate if they’re in city limits.

But a home in a development just outside of city limits could be paying 50% more for water than a house across the street that’s in the city, despite the cost to pump water to those two customers being roughly the same. In some areas of the South Hill, a fence is all that separates those who pay markedly different rates.

Tuesday’s decision only determines what the city’s obligations are, not whether those obligations have been broken; the court did not rule that the city’s rates are unjust or unreasonable.

It’s still a victory, if an intermediary one, said Alexandria Drake, an attorney with Dunn and Black law, which represents the plaintiffs suing the city for allegedly unfair water rates. Drake argued this case to the appeals court.

The city, by arguing it was not required to meet a “just and reasonable” standard with its fees, had tried to make it substantially more difficult for customers outside city limits to challenge “oppressive or unreasonable rates,” Drake said. Under that standard, the city has to be able to justify how it determined the differences in rates, she added.

“I think it’s a little more technical than that,” Marlene Feist, director of the city’s Public Works division, which oversees the city Water Department, said in a Tuesday interview. “There’s a lot of nuance there, and I think we need time to evaluate what that means.”

The practical effect of the court’s decision on the outstanding lawsuits is unclear, Feist argued. While the additional “just and reasonable” requirement potentially placed additional burdens on the city to justify its rates, whether that impacted the merits of the case still needed to be determined in court, she added.

Fore!

The ongoing fight over water rates for customers outside Spokane city limits started with a golf course south of the airport.

In 2017, right as spring turned to summer, the city of Spokane turned off the spigot for The Plains Golf Course, which at the time was called The Fairways, in the middle of a yearslong dispute regarding unpaid water bills.

At the time, The Fairways had a $40,740 outstanding bill for two months from the 2016 golf season and another two months from the 2015 season. City officials had offered a payment plan, but club professional Kris Kallem said at the time that the rates being charged would force the course to shut down.

“There is no way we can do that,” Kallem said. “Either you try to pay the city and lay people off, or go the legal route and see if you have any standing.”

The Fairways chose the latter.

“The city basically took the position that they were dealing with a deadbeat water user,” attorney Bob Dunn, who has been working on behalf of the golf course owners, said at the time. “Our position was we are not talking about a water user who is unwilling to pay a fair rate. The rate we were being charged was inherently unfair.”

A lawsuit was quickly filed to finally settle the longstanding dispute. A day later, a Superior Court judge ordered the city to restore water service to the golf course, while the golf course owner was ordered to deposit with the court the $40,740 the city claims it was owed.

Within weeks, the battle spilled off the green. A $30 million class-action lawsuit representing thousands of out-of-city water customers was filed by Dunn and fellow lawyer Bil Childress.

At the time, then-city spokeswoman Feist provided a written statement defending the rate disparity.

“The city’s citizens rightfully benefit from their long-term investment with inside-city rates,” the statement said. “State law and court decisions support this approach, which has been in place in the city for more than 50 years and in cities around the state including Tacoma, Seattle and Kennewick. It would be unfair to ask city residents to pay more now to accommodate lower rates for outside developments.”

It took 18 months for the class action to be approved by a Superior Court judge, by which time around 5,300 Spokane County residents were represented.

As part of the lawsuit, Dunn and Childress asked for the documents from the city that show how much it costs to pump water out of the aquifer, how much it costs for the pipes, the hookups and the cost of upkeep on the system.

But out of 4 million pages of documents provided by the city, Dunn said in 2019 that he only found one that mentioned a cost analysis for how water fees were applied to county users.

“Rather than doing a very time consuming and costly rate study, a more intuitive approach has been used in adopting our present rate structure,” former city water director Brad Blegen wrote in 2002. “This intuitive or common sense approach yields close enough results to indicate the fairness of our rates.”

When asked at the time for any other studies done by the city to justify the rates to county users, then-city spokeswoman Feist said she could not elaborate.

“Our attorneys are producing millions of pages of discovery,” she said in 2019. “For me to jump in and provide more details would be inappropriate.”

Five years later, Feist, now leading the city division overseeing how water rates are determined, said in a Tuesday interview that the city has provided additional information justifying its water rates.

“We’re still in open litigation here, so we’re somewhat limited – I’m not going to try the case at this point,” Feist said. “Have we hired experts to review our rate structure? Of course we have.”

Water, water, everywhere

It’s not clear what will come next in the yearslong fight over water rates. The city could request the state Supreme Court to review the appeals court decision, though the higher court has previously declined to hear the case.

If the state Supreme Court declines again, or the city declines to ask for further appeal, both the class action and the suit brought by West Terraces Golf, which owns the course renamed The Plains in 2023, can continue. Both suits were stayed during the dispute settled Tuesday.

As of 2024, 6,200 of the city’s 78,000 water customers are being charged out-of-city rates.

In the years since litigation was first brought, things have changed noticeably at The Plains, and not just the name.

Once an 18-hole course, the front nine was closed permanently starting in the 2023 season.

The decision seemed imminent due to high water costs, General Manager Dakota White told the Cheney Free Press in 2022.

“It’s just that as this lawsuit has gone on and on and we have continued to pay increasingly higher rates,” he was quoted as saying. “Some people think we haven’t had to pay water rates through the lawsuit, but we have actually paid over $300,000 since the beginning of the lawsuit.”

The court is currently holding onto around $90,000 that the city believes it is owed pending conclusion of the outstanding lawsuit, Feist said, though she said she was not able to disclose the course’s total unpaid water bills.

Water usage at the golf course consequently plummeted last year. In 2023, The Plains used 31.1 million gallons of water, down from nearly 62 million two years prior.

Notably, however, the course still used significantly more water per-hole than any other golf course buying water from the city of Spokane.