On Tuesday, lawyers for the San Diego County Water Authority will argue in San Francisco Superior Court for overturning illegal rates charged by the Los Angeles-based Metropolitan Water District of Southern California, commencing a five-day trial that has financial implications for water ratepayers across the region and state.
In opening statements before Judge Curtis E.A. Karnow, the Water Authority’s attorneys will argue that MWD’s rates don’t align with the costs of the services it provides. Numerous California statutes, the California Constitution and common law all require that public agencies such as MWD set their rates based on the actual costs of the services they provide.
“This case is fundamentally about whether MWD is above the laws that apply to public agencies – laws that are designed to protect ratepayers from having to pay rates higher than what it actually costs the water utility to provide services to them,” said Daniel Purcell, special counsel for the Water Authority with the law firm of Keker & Van Nest in San Francisco. “All water ratepayers in Southern California have an interest in assuring that MWD charges no more than the costs it incurs to provide its services, as mandated under a number of laws and constitutional provisions, including Proposition 26, approved by voters statewide in 2010.”
The first phase of the trial is expected to run through Dec. 23. It will focus on the challenges to MWD’s rates for 2011 through 2014 in two cases that have been coordinated for trial. A second, yet-to-be-scheduled phase of the trial would address the Water Authority’s claim that MWD miscalculates San Diego’s preferential rights to MWD water, and the Water Authority’s claim that MWD breached the contract it signed with the Water Authority promising to charge only lawful rates for the transportation of its Colorado River water.
The trial’s outcome will have a major impact on San Diego County residents and businesses alike, which prompted dozens of public agencies, business groups and community organizations to formally support the Water Authority’s litigation against MWD.
Under MWD’s current rates, the region’s ratepayers will be overcharged this year by $57 million – overcharges that could grow to more than $217 million annually by 2021 and ultimately exceed a combined $2 billion. MWD’s flawed rates create overcharges for San Diego County for the transportation of water and corresponding undercharges for the water MWD sells to its member agencies.
“If the court orders MWD to re-do how it allocates its costs, it will be because they were wrong in the first place,” said Purcell. “In the long run, having MWD allocate its costs accurately, lawfully and fairly is good for everyone in Southern California. Nobody wants to be stuck paying bills for services provided to someone else.”
The Water Authority first sued MWD in June 2010 for adopting illegal rates that are not based on the costs of providing the services for which they are collected. The Water Authority filed another lawsuit in June 2012 because the 2010 case had not been resolved and MWD had adopted rates for 2013 and 2014 based on its same flawed allocation.
In both lawsuits, the Water Authority asserts that MWD illegally assigns unrelated water supply costs – including its costs of obtaining water from the state of California and its costs of subsidizing local water supply projects – to MWD’s water transportation rates. Among other things, the lawsuits also allege that MWD’s rates discriminate against the Water Authority by artificially inflating the price MWD charges for transporting the Water Authority’s independent Colorado River water supplies through MWD’s pipelines.
MWD argues it can set its rates without regard to the actual costs of service – and that it can even collect more than the costs of the services it provides, as long as a majority of its board votes for it. MWD has admitted that it has no idea whether it is under- or over-collecting on any of its rates by tens of millions of dollars annually.
MWD also argues that it is exempt from Proposition 26, a voter-approved initiative in November 2010 that amended the California Constitution. Proposition 26 shifted the burden to public agencies to prove their rates are based on the actual cost of the services they provide. In September 2013, Judge Karnow rejected MWD’s attempt to legally exempt its rates for 2013 and 2014 without trial by ruling that he will decide the issue based on the facts presented at trial. Judge Karnow ruled earlier this year that Proposition 26 is not retroactive, and therefore does not apply to the rates MWD adopted in April 2010 for 2011 and 2012.
The litigation stems from historic agreements the Water Authority signed a decade ago to secure independent sources of water from the Colorado River and reduce its once near-total reliance on MWD for water. To transport these Colorado River water supplies to San Diego County, the Water Authority must use pipelines controlled by MWD, which has a monopoly on imported water distribution facilities in Southern California. The Water Authority is the only MWD member agency that uses the pipelines MWD controls to transport a large volume of third-party water supplies each year. MWD’s current rates were designed to protect MWD’s monopoly and to purposefully discriminate against the Water Authority by shifting water supply costs to transportation rates.
For more information about the Water Authority’s lawsuits for fair water rates, go to www.sdcwa.org/mwdrate-challenge.