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Water Authority Board Approves Filing a Lawsuit Against Metropolitan Water District Challenging Illegal Water Rates
MWD rate structure discourages water conservation and local water supply development
June 10, 2010
The San Diego County Water Authority Board of Directors today unanimously approved filing suit against the Metropolitan Water District of Southern California challenging the 2011 and 2012 water rates that MWD adopted in April.
“MWD improperly overcharges the Water Authority and its ratepayers in violation of California law,” said Claude A. “Bud” Lewis, chair of the Water Authority’s Board of Directors. “MWD charges too much for using its facilities to transport water and spends those revenues to subsidize the water supply costs of other MWD member agencies. This unlawful rate structure not only causes significant harm to San Diego County’s ratepayers, it hampers efforts to improve long-term water supply reliability for all of Southern California by discouraging conservation and local water supply development.”
At the center of this dispute is how MWD allocates State Water Project and other water supply costs among its different rate categories. MWD purchases more than half of its water from the State Water Project under a water supply contract with the Department of Water Resources. Instead of treating these purchases as a cost of water, MWD allocates nearly 80 percent of this cost to charges it imposes for the transportation of water through MWD facilities.
The Water Authority believes 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 water conservation agreements with the Imperial Irrigation District and also from lining portions of the All American and Coachella Canals.
The consequence is that MWD’s water supply rate is artificially low, while the water transportation rate is artificially high. (For more detail on the MWD rate categories the Water Authority’s lawsuit is challenging, see sidebar at the end of this news release.)
Under the recently adopted rates, MWD will overcharge the Water Authority and its ratepayers by approximately $30 million in 2011 and approximately $34 million in 2012 for transporting the Water Authority’s Colorado River supplies from the Imperial Valley. If MWD continues to set annual rates using the same flawed formula, the Water Authority’s ratepayers may be overcharged as much as $230 million annually by 2021.
“There is a lot at stake for the Water Authority and the San Diego region’s ratepayers,” Lewis said. “We worked diligently to try to persuade MWD’s board of directors to revise its rates to comply with California law and industry standards. Unfortunately, MWD failed to address our legitimate and serious concerns before its Board approved the rates for 2011 and 2012.”
The Water Authority Board of Directors also authorized seeking a stay of the lawsuit so the two agencies can try to resolve the dispute through negotiations. The stay would enable the Water Authority to protect its rights to contest MWD’s rates in court if negotiations fail.
California law and the statutes that established MWD require the agency to impose rates that reflect the actual, reasonable and proportionate cost of serving each class of customers. Earlier this year, the Water Authority retained independent legal and public finance experts to analyze MWD’s costs and proposed rates. These experts determined that MWD is improperly classifying hundreds of millions of dollars in water supply costs, including the cost of water MWD buys from the State Water Project, as water transportation costs. By doing so, MWD has violated California law and standard industry practices, the experts concluded. (The experts’ reports are available at www.sdcwa.org/water-rates-charges)
The Water Authority’s rate experts also found MWD’s rate practices harm long-term regional and statewide water supply reliability efforts by disguising the true price of imported water to Southern California. By selling to its member agencies water imported from the Bay-Delta and other sources at an artificially low price, MWD discourages cost-effective water conservation and local investment in water supply projects that can improve Southern California water supply reliability, while reducing the region’s exposure to droughts or regulatory restrictions on imported water.
While MWD describes its 2011 and 2012 rate increases as “averaging” 7.5 percent in each of the two years, the actual rate increases can be much higher, depending upon what services an agency buys from MWD. For example, in 2011 – despite region-wide water rationing and at a time MWD is not building any new water transportation facilities – the cost for using MWD’s water transportation facilities is set to increase by more than 18 percent, while the cost of MWD water is set to decrease by 9 percent. The rates are set to take effect January 1 of 2011 and 2012.
MWD is the Water Authority’s largest water supplier. This year, the Water Authority estimates it will purchase 342,000 acre-feet of water from MWD, amounting to approximately 50 percent of the San Diego region’s water supplies.
Since 2003, the Water Authority has received a growing percentage of its water supply from its long-term water conservation transfer with the Imperial Irrigation District and conserved water from projects that lined portions of the All-American and Coachella Canals in Imperial Valley. (An acre-foot is 325,900 gallons, or enough to meet the needs of two average single-family households of four for a year.)
For more detailed information on the Water Authority’s challenge to MWD’s 2011 and 2012 rates, visit www.sdcwa.org/water-rates-charges.
# # #
What specific MWD rate categories is the Water Authority’s lawsuit challenging?
The Water Authority’s lawsuit claims MWD is improperly charging hundreds of millions of dollars in water supply costs to its System Access Rate, System Power Rate and Water Stewardship Rate. These three rate components comprise MWD’s water transportation charge.
System Access Rate is paid by MWD member agencies that buy MWD water or use MWD’s facilities to transport water not purchased from MWD. Nearly 80 percent of MWD’s State Water Project water supply costs – amounting to hundreds of millions of dollars annually – is assigned to this water transportation rate category, in violation of California law. These costs belong in the Water Supply Rate category.
System Power Rate recovers the costs of energy needed to pump water to Southern California. It is a charge applied to every acre-foot of water transported by MWD. The rate currently includes Department of Water Resources’ energy costs for the State Water Project, which MWD does not own or operate. The costs of power needed by the state to deliver water supply to MWD’s connections in Southern California are a supplier cost and part of the cost of that water supply. However, MWD improperly assigns that cost to its own transportation rate category. These costs belong in the Water Supply Rate category.
Water Stewardship Rate recovers the cost of providing financial incentives to MWD’s member agencies for developing new local water supply projects. These incentives can be for conservation, recycled water, desalination, or other new water supplies. However, MWD charges these water supply costs as a water transportation service. Because this rate pays for water supply development, it should be applied to the Water Supply Rate.
Water Supply Rate is, in theory, supposed to recover the cost of MWD’s water supplies, including supplies it imports from the Colorado River and State Water Project supplies. However, MWD assigns about 80 percent of its annual State Water Project water supply costs to its water transportation rate category. All of these water supply costs belong in the Water Supply Rate category.