Water Authority Seeks Review of MWD Wheeling Rates by State Supreme Court

 
Short Title
Water Authority Seeks Review of MWD Wheeling Rates by State Supreme Court
Petition raises issues of statewide concern over protection of the Bay-Delta ecosystem, efficient use of water resources and unregulated pricing by a government agency
Litigation Timeline
  • The state Supreme Court has until Sept. 29 to determine if it will hear the case, though it can grant itself a 30-day extension.
  • If the state Supreme Court decides to hear the case, it would likely take 18 to 24 months to issue a final decision.
July 31, 2017

The San Diego County Water Authority on Monday petitioned California’s highest court to review an issue of statewide significance – whether the Metropolitan Water District of Southern California may charge its transportation-only customers costs associated with a service those customers do not purchase.  Specifically, the petition asks the Supreme Court to review whether MWD may include in the transportation rates it charges the Water Authority to wheel its conserved Colorado River water, MWD’s unrelated State Water Project supply costs. 

Central to the case are two pillars of public policy in California: the efficient allocation and conservation of the state’s water supplies, and the state’s broad commitment to ensure that the price of government services reflects no more than the costs the government incurs in providing them. 

The petition also urges Supreme Court review because the Court of Appeal decision breaks with a line of prior state appellate court opinions that have appropriately recognized that -- particularly when it comes to water service -- charges must be based on the reasonable cost of the services provided to ensure basic fairness in the prices Californians pay for this basic necessity of life.

MWD owns the only water conveyance facilities available to transport water to most of Southern California.  After several weeks of testimony during a bifurcated trial on the merits, San Francisco Superior Court Judge Curtis E.A. Karnow ruled in favor of the Water Authority on almost all its claims, including a ruling that MWD had overcharged the Water Authority for use of its Colorado River Aqueduct by almost $200 million during the four years at issue in the 2010 and 2012 cases before the court. The Water Authority and MWD both appealed parts of the Superior Court's decisions. The 1st District Court of Appeal ruled in favor of the Water Authority on nine out of 10 significant issues, including that MWD: breached its contract with the Water Authority, which required MWD to set legal rates; undercounted the Water Authority’s right to MWD water by nearly 100,000 acre-feet a year; and collected tens of millions of dollars in illegal "water stewardship" charges from San Diego ratepayers.

But the Court of Appeal ruled against the Water Authority on one important issue that has broad implications for California ratepayers and taxpayers, finding that certain State "project water supply charges," itemized by the Department of Water Resources as transportation-related for purposes of billing its own customers, and comprising about 75% of total State Water Project costs, could be treated by MWD as though they were its transportation costs and charged to its transportation-only customers. This single issue, involving the Court's analysis of State Water Project costs, is the basis of the Water Authority’s petition to the state Supreme Court. 

Review of the petition by the California Supreme Court is of vital importance to the Water Authority, serving San Diego County's 3.3 million residents, its thriving $222 billion economy and one of the largest concentrations of military facilities in the United States, including the First Marine Division at Camp Pendleton and much of the Navy's Pacific Fleet.

“If not reviewed and reversed, the negative impacts of the Court of Appeal decision will extend far outside San Diego County, to the rest of California, as the decision undermines core California state policies favoring the efficient use and transportation of existing water supplies, reduced reliance on water from the environmentally sensitive Bay-Delta ecosystem, and reasonable government rate-setting,” said Neal Katyal, special counsel for the Water Authority from the firm of Hogan Lovells US, in Washington, D.C., who led the petition along with Keker, Van Nest & Peters, of San Francisco.

“While components of this case appear complex, it essentially boils down to whether MWD can force San Diego County to pay for a State Water Project supply it didn't want to buy and hasn't received,” said Mark Muir, Chair of the Water Authority’s Board of Directors. “We are hopeful that the state’s highest court will recognize that the Water Authority's Board of Directors did the right thing when it chose to invest billions of dollars to conserve water in Imperial County, rather than continue its heavy reliance on imported water supplies purchased from MWD, a substantial portion of which MWD obtains from the Bay-Delta. We also hope the Supreme Court will grant review in order to preserve bedrock limits on the power of government to impose fees and charges on ordinary Californians.”

The Water Authority is represented by Neal Katyal, Hogan Lovells US, Washington, D.C., Keker, Van Nest & Peters, San Francisco, and Brownstein Hyatt Farber Schreck, a national firm with offices in San Diego. Additional information about the rate case, including the Supreme Court petition for review and the appellate court ruling, is at www.sdcwa.org/mwdrate-challenge.