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MWD Rate Challenge
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On April 19, the California’s 1st Appellate District Court of Appeal summarily denied a writ petition by the Metropolitan Water District of Southern California seeking to prevent discovery in the lawsuit filed by the Water Authority challenging MWD’s 2011 and 2012 rates. MWD filed the writ petition March 6, 60 days after San Francisco Superior Court Judge Richard Kramer granted a motion by the Imperial Irrigation District and the Water Authority to permit discovery in the case.
MWD was seeking to overturn a Jan. 6, 2012 decision by San Francisco Superior Court Judge Richard A. Kramer granting discovery under a specific California statute, Water Code section 1813. The action by the appellate court dissolved a temporary stay on discovery, which the appellate court had issued pending its consideration of MWD’s writ.
"MWD is trying to prevent scrutiny of its conduct, because that conduct is so indefensible. But ultimately, both the public and the Court are entitled to know the facts,” said Daniel Purcell, an attorney representing the Water Authority. “We remain confident that, when all the facts are out, the Court will find that MWD has failed to follow California law.”
In June 2010, the Water Authority filed a lawsuit challenging MWD’s 2011 and 2012 wholesale water rates. The Water Authority alleges that MWD improperly overcharges for the transportation of water and uses that money to subsidize the cost of MWD water. This violates California’s Constitution, other state law and standard water utility practice.
In addition to three causes of action challenging the 2011 and 2012 rates, the Water Authority’s lawsuit claims MWD breached its 2003 contract with the Water Authority in which it pledged to follow applicable law in charging the Water Authority and its ratepayers for transportation of water. Another claims MWD has unlawfully under-calculated the Water Authority’s Preferential Rights to purchase water. The Water Authority is also challenging MWD’s imposition of a retaliatory contract provision designed to prevent the Water Authority from challenging MWD’s unlawful rates in a court of law.
The next court date is scheduled for May 10.
The Imperial Irrigation District and the San Diego-based Utility Consumer Action Network (UCAN) have joined the case as interested parties on the Water Authority’s side. Eight MWD member agencies joined the case on MWD's side.
The stakes in the litigation are estimated at between $1.3 billion and $2.1 billion over a 45-year period. As part of the 2003 contract that the Water Authority alleges MWD has breached, MWD is required to place all disputed payments made by the Water Authority into an escrow account, which MWD cannot spend during the pendency of the litigation. If the Water Authority wins the case, MWD will be required to return those funds to the Water Authority. By the end of 2012, the escrow account will grow to approximately $78 million. By the end of 2013, the balance will grow to approximately $135 million.
Background
MWD’s Misallocation of Costs
MWD, our largest supplier, improperly overcharges for the transportation of water and uses that money to subsidize the cost of MWD water. This violates California’s Constitution, other state law, and standard water utility practice.
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Water conserved by the All-American Canal lining project is an important part of the Water Authority's Colorado River water supplies.
MWD purchases more than half of its water from the State Water Project under a contract with the Department of Water Resources. Instead of treating these purchases as a cost of water, MWD allocates nearly 80 percent of the cost to charges it imposes for the transportation of water through MWD facilities. This discriminates against the Water Authority, which is the single largest user of MWD transportation services. The Water Authority uses MWD facilities to transport Colorado River water it purchases under a water conservation agreement with the Imperial Irrigation District, and also from lining sections of the All-American and Coachella Canals.
Range of MWD Overcharges in 2021
The financial impact of MWD's overcharges could vary greatly depending on potential costs to fix the Bay-Delta and incentives to develop local water supplies
The financial impact of MWD's overcharges could vary greatly depending on potential costs to fix the Bay-Delta and incentives to develop local water supplies
Financial Impacts to San Diego County Ratepayers
MWD’s approved rate structure will cause significant financial harm to the San Diego region. San Diego County will lose up to $40 million in 2012 through MWD’s overcharges; those overcharges may grow to as much as $217 million annually as the Water Authority’s independent Colorado River supplies reach the maximum annual amount in 2021.
Negative Impact to Conservation and Statewide Water Supply Reliability Efforts
MWD’s rate structure disguises the true price of imported water and impedes cost-efficient water conservation and long-term regional and statewide water supply reliability efforts. By charging an artificially low rate for its water supplies, MWD discourages water conservation and local agency investments in cost-effective water supply projects. These local investments could improve Southern California’s water supply reliability and reduce the region’s exposure to droughts or regulatory restrictions on imported water.
impact of MWD Overcharges to Water Authority Ratepayers*
*Based on annual water sales of 600,000 acre-feet and $40 billion cost to fix the Bay-Delta
*Based on annual water sales of 600,000 acre-feet and $40 billion cost to fix the Bay-Delta
