A plan to provide some New York City homeowners credits on their water bills while hiking rates for other users was arbitrary, a state appeals court ruled.

The ruling, issued Thursday by a 3-1 panel of the Appellate Division, First Department, affirmed Manhattan Supreme Court Justice Carol Edmead’s order to invalidate the city Water Board’s vote to provide one-time $183 credits to one-, two- and three-family residences—regardless of property value or size—while implementing a 2.1 percent increase for other users.