HAYWARD -- About 200 water customers in an unincorporated neighborhood will see a surcharge on their bills plummet from 50 percent to 15 percent beginning in January, as the city reassesses the actual cost of delivering the service.

For decades, the approximately 200 residents in the unincorporated Castle Homes area in Fairview have been paying the surcharge to cover the additional expense it costs the city to deliver fresh water to them. In July, several of the residents complained to the council, saying the fee was too high, and the council asked staff members to evaluate the surcharge.

The City Council approved the decrease on a 6-0 vote Tuesday, with Mayor Michael Sweeney absent.

"This is a fairness issue," Councilman Al Mendall told a group of Castle Homes residents at the meeting. "Fifteen percent is fair. It covers the additional cost of providing water to you, and no more."

The 15 percent figure was recommended by a consultant, West Yost Associates, after reviewing the city's files for the past two years. For an average Castle Homes customer with a two-month water bill of $100 and a surcharge of $50, that surcharge will drop $35, down to $15, for a total bill of $115, Public Works Director Alex Ameri said Wednesday.

It costs more to deliver water to the Castle Homes properties than those within the city. Most of Hayward's pipelines are part of a looped system, with water constantly moving through a grid system and remaining fresh.

But the Castle Homes area has mostly long dead-end pipelines, some of which are not close to the city limits, and sitting water has been a problem, according to the staff report. To maintain water quality, Hayward workers have to periodically flush the lines and truck the drained water for disposal elsewhere.

In the beginning, the surcharge also may have helped pay a portion of the cost of building Hayward's reservoirs, according to the staff report.

The consultant found that, as water rates have risen, the 50 percent surcharge has brought more money than the city needs to deliver service to Castle Homes.

"The percentage of surcharge we need has gone down," Ameri told the council Tuesday.

"The 15 percent is fair and reasonable and well-studied," said Dale Silva, president of the Hayward Hills Property Owners Association. He thanked city Public Works employees for working with the homeowners to come up with the new surcharge amount.

Hayward water customers have seen their bills almost double in the five years because of increases the city is charged by the San Francisco Public Utilities Commission, which brings water to the Bay Area from the Hetch Hetchy Reservoir in the Sierra Nevada.

The San Francisco PUC is repairing and retrofitting its delivery system, at a cost of $4.3 billion, and passing along some of that expense to its wholesale users, which include Hayward. The city receives all of its water from the San Francisco PUC.

In 2008, the average residential customer using 225 gallons of water a day paid $52 for two months' worth, with Castle Homes paying an extra $26 surcharge. In 2013, that same amount of water cost $95 for city residents, with an additional surcharge of $47 for those 200 customers living outside the city.

"If the cost of water had not gone up, I would have requested a 30 percent surcharge" to cover the additional expense of delivering water to the Castle Homes area, Ameri told the council.

The city also moved the surcharge rate from the municipal code to the master fee schedule, which allows the amount to be adjusted if the cost of providing the water changes, he said.

Lowering the surcharge will mean a decrease in revenue of about $50,000 a year, according to the report. The city will absorb the shortfall for now, Public Works administrative analyst Marilyn Mosher said Wednesday. In the spring of 2015, staff members will likely request an average increase of 10 cents in monthly water rates beginning in October 2015, she said.

"It is not that we are giving Castle Homes owners a break; we're just coming up with an equitable surcharge," Ameri said Wednesday. "We met with them twice and listened to their concerns."

Councilwoman Barbara Halliday said Wednesday the council listened to the residents, and the staff responded.

"Once again, the old adage 'you can't fight City Hall' is disproved," she said.

Contact Rebecca Parr at 510-293-2473, or follow her at Twitter.com/rdparr1.