In a ruling with major implications for California’s water conservation efforts during the historic drought, a state appeals court on Monday ruled that a tiered water rate structure used by the city of San Juan Capistrano to encourage saving was unconstitutional.

The Orange County city used a rate structure that charged customers who used small amounts of water a lower rate than customers who used larger amounts.

But the 4th District Court of Appeal struck down San Juan Capistrano’s fee plan, saying it violated voter-approved Proposition 218, which prohibits government agencies from charging more for a service than it costs to provide it.

The stakes are high because at least two-thirds of California water providers, including many in the Bay Area, use some form of the tiered rate system.

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