Three‐Zone Water Rate Schedule Not Arbitrary

A three‐zone water rate schedule adopted by a city water utility board was not arbitrary or capricious, according to the Supreme Court of Alabama. Three geographical rate zones were established by the Water Works Board of Birmingham based on a cost of service study that took into account that zone rates should represent an average rate for all customers in that zone, that costs allocated within the zones should be based on the relationships between average‐day, maximum‐day, and maximum‐hour demand patterns, and that fire protection costs should be determined for each zone and rate schedules should be structured to recover such costs. The court believed that four physical differences supported the board's action in establishing the three‐zone rate: population density, distance from the filtration plant, age of the system, and peaking factor. In addition, the court noted the amount of water required for fighting fires and the density of hydrants differed for each zone.