The San Diego County Water Authority on Friday filed its third legal challenge against rates set by the Metropolitan Water District of Southern California, alleging that MWD’s rates for 2015 and 2016 aren’t based on the costs of providing the services. If allowed to stand, MWD’s rates for those two years alone would overcharge San Diego County ratepayers by $92 million; over 45 years, the total overcharges by MWD could exceed $2 billion.
The latest lawsuit follows a sweeping victory for the Water Authority in the first phase of litigation in two similar lawsuits challenging MWD’s rates. On April 24, San Francisco County Superior Court Judge Curtis E. A. Karnow issued a final statement of decision that said MWD violated cost-of-service requirements in California’s Constitution, statutes and common law when setting rates for 2011, 2012, 2013 and 2014. Specifically, the court said MWD’s rates violate California’s wheeling statute, Government Code section 54999.7(a), and common law that apply to ratemaking. He also said MWD’s 2013 and 2014 rates violate Proposition 26, approved by voters in November 2010 and now embodied in the California Constitution as Article XIIIC. Proposition 26 shifted the burden to public agencies to prove they are not charging more than the actual cost of the services they provide.
The Water Authority’s Board of Directors voted unanimously on April 24 to authorize another lawsuit against MWD over rates it adopted on April 8 for 2015 and 2016 using the same illegal methodology it used the prior four years.
“Even after a major legal defeat, MWD continues clinging to its belief that it can set rates however it wants,” said Maureen Stapleton, general manager of the Water Authority. “That’s bad for water ratepayers across Southern California. They will have to pay millions more dollars for MWD to defend decisions that the court has already ruled are illegal."
MWD’s current rates were expressly designed to protect the agency’s monopoly and to discriminate against the Water Authority by shifting unrelated water supply costs onto transportation rates, while illegally subsidizing MWD’s water supply rate. MWD asserted in court 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 also contended in court that it was exempt from Proposition 26, as well as other constitutional and statutory provisions of California law.
The Water Authority filed its first rate lawsuit against MWD in 2010, then filed a second suit in 2012 because MWD refused to reform its rates, which effectively force San Diego County ratepayers to subsidize water ratepayers in other parts of Southern California. The two cases were coordinated for trial, with the main issues being broken into two phases of hearings.
Attorneys for the Water Authority argued during a five-day trial in December that MWD had loaded unrelated costs onto the rate it charges for transporting water – a scheme that disproportionately damages San Diego County ratepayers because the Water Authority is the only water agency that uses MWD’s transportation service (also known as “wheeling”) to move large volumes of supplies purchased from sources independent of MWD.
A case management conference is set for July 2 to schedule the second phase of the trial to address the Water Authority’s claims based on breach of contract and preferential rights.
Phase 2 of the trial also is expected to determine the disposition of tens of millions of dollars in disputed payments the Water Authority has made since 2011. Should the court award a refund to the Water Authority, the agency will deduct its litigation expenses and return the remaining money to its 24 member agencies in proportion to their past payment of MWD’s illegal overcharges.
The Water Authority’s lawsuits stem from historic agreements the agency signed a decade ago to secure independent sources of water from the Colorado River and reduce the San Diego region’s 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.
For more information about the Water Authority’s lawsuits, including a copy of the most recent lawsuit, go to www.sdcwa.org/mwdrate-challenge.