One of the Bay Area’s wealthiest communities has a small uprising on its hands: a group of millionaires angry about water rates. And local leaders are moving to quash it.

Attorneys for the town of Hillsborough filed court documents this month defending the practice of hitting residents with higher water rates when they use more of the stuff, a policy that helps encourage conservation.

But nine people in the town, where homes go for an average $4.3 million and historically consume three times as much water as elsewhere, say the bigger bills don’t reflect the cost of providing the water — and are therefore unconstitutional. They’re suing the town in an attempt to lower prices and recoup their payments.

The lawsuit in San Mateo County Superior Court takes aim not only at tiered water rates, which have been challenged in a handful of California cities, but Hillsborough’s penalties for excessive water use. The suit alleges that fines, which have been common across the state as cities push for water savings during five years of drought, should also correlate with costs.

“All they’re really doing is charging extra for extra water use,” said Beau Burbidge, the attorney representing the Hillsborough residents. “It’s kind of a tier over the tiers itself.

“We understand the drought is severe and water use needs to be cut,” he said, “but we have to do that in a matter that’s consistent with the law.”

The dispute over water rates follows a complex decision last year by a Southern California appellate court, which struck down tiered pricing in the Orange County city of San Juan Capistrano. The court said the city was illegally charging customers more for a public service than what it cost to provide the service.

While the ruling didn’t invalidate all tiered-rate policies — just those that are out of sync with a supplier’s costs — it created confusion for many water agencies about how to effectively and legally price water during dry times. The Hillsborough case, and its challenge to penalties, could make things even murkier.

“We hope the courts can provide some clarity,” said Michael Lauffer, chief counsel for the State Water Resources Control Board, who believes water pricing is an important tool for leveraging savings. “Until we get a good court decision from the Supreme Court or other courts of appeal, it makes it difficult to actually advance the law in this area.”

The state water board has been the driving force for statewide conservation throughout the drought, demanding that suppliers like Hillsborough reduce consumption through any number of methods, including pricing and penalties.

Until recently, Hillsborough faced one of the state’s most aggressive directives, a 36 percent water cutback over its 2013 consumption. If the town didn’t hit the target, it would face potential penalties.

The mandate prompted Hillsborough to initiate fines for excessive water use on top of tiered pricing. Starting in June 2015, customers were allotted a certain amount of water based on the size of their parcel and household, and charged an extra $30 for every 748 gallons they went over the allowance.

The fines, which have since been dropped as water shortages have eased, brought in about $600,000, according to those suing the town.

Among the plaintiffs are venture capitalist David Marquardt, wealth manager Eldridge Gray and oral surgeon Charles Syers. Brad and Kathy Baruh, Charles Bolton, John Lockton, Paul Rochester and Arthur Stromberg are also in the fight.

Many have large homes with sprawling landscapes requiring heavy watering, as is typical of the San Francisco suburb. The town of 11,500, tucked in the Peninsula hills west of San Mateo, boasts a median household income of $229,000, according to census data, making it one of the nation’s richest places.

The November lawsuit, like cases against water rates elsewhere in the state including San Juan Capistrano, is based on Proposition 218. The voter-approved measure doesn’t allow public agencies to charge more for a service than what it costs them to provide the service.

Since Hillsborough’s water department buys its water at a fixed cost from the San Francisco Public Utilities Commission, the town is in violation of the law, the suit alleges.

The town rejected this allegation in its Dec. 14 court filing, saying its water rates appropriately reflect its costs — not just for buying the water but for delivering it — which go up with consumption.

“Your system has to be sized sufficiently for enough water to flow through the system to serve the demand at the peak hour on the peak day,” explained Kelly Salt, an attorney working under contract for Hillsborough. “The more water you use, the bigger you have to size your pipes, your reservoirs, your pumping station.

“Yes, tiered rates have the incidental effect of encouraging conservation,” she said. “But ultimately the tiers are designed to cover the incremental costs.”

Salt dismissed the claim that excessive-use penalties have to be commensurate with expenses, as did the lawyer for the state water board.

“There are a lot of clever attorneys out there who will push these arguments,” Lauffer said, noting that Prop. 218 applies to property-related fees but not civil fines.

The lawsuit alleges that because the fine is related to property ownership, it’s actually a fee. But according to Lauffer, such limitations were never the intent of the proposition.

“These constitutional amendments get put on the ballot, and they may feel good,” he said. “But they often have far-reaching and unintended consequences.”

Kurtis Alexander is a San Francisco Chronicle staff writer. Email: kalexander@sfchronicle.com Twitter: @kurtisalexander