Final Ruling: Water Authority Owed $188.3 Million Plus Interest in Rate Case Victory
August 28 2015 - 6:00PM
Business Wire
Superior Court judge also finds MWD under-calculated Water
Authority’s right to MWD water
A San Francisco Superior Court judge today issued a final
decision that says the Metropolitan Water District of Southern
California must pay the San Diego County Water Authority $188.3
million plus interest for illegal water rates MWD charged from 2011
to 2014. Judge Curtis E.A. Karnow also determined that MWD has been
under-calculating the Water Authority’s preferential right to MWD
water supplies by improperly excluding hundreds of millions of
dollars of payments made by the Water Authority.
Today’s final ruling affirms the tentative ruling Judge Karnow
issued July 15. In his final ruling, Judge Karnow rejected all of
MWD’s defenses to the Water Authority’s legal challenges, including
the contention that the Water Authority consented to being
overcharged by the Los Angeles-based wholesaler. Instead, he said
the Water Authority is entitled to the damages it claimed – four
years of overpayments totaling $188.3 million, plus interest. If
allowed to stand, MWD’s overcharges would have exceeded $2 billion
over 45 years.
“After five years in court, we have prevailed on the two main
points of our lawsuit – that MWD has systematically overcharged the
San Diego region’s ratepayers while shorting our rights to MWD
water,” said Mark Weston, chair of the Water Authority’s Board of
Directors. “Today’s final ruling affirms our efforts to protect San
Diego County ratepayers. We will continue to need support from
civic and business groups as we fight MWD’s expected appeals and
new strategies to overcharge this region.”
In April 2014, Judge Karnow ruled that MWD’s 2011-2014 rates
violated California statutes and common law that require public
water agencies to limit the rates they charge to the costs of
providing their services. He also ruled that MWD’s 2013 and 2014
rates violated Proposition 26, passed by California voters in
November 2010 and enshrined in Articles 13A and 13C of the
California Constitution. Proposition 26 shifted the burden to
public agencies to prove they are not charging more than the actual
cost of the services they provide.
Today’s final ruling by Judge Karnow calculated damages owed to
the Water Authority by Metropolitan for its illegal rates, along
with a determination that MWD’s interpretation of a statutory water
rights formula has improperly excluded payments by the Water
Authority for transporting the Water Authority’s independent
Colorado River water supplies. By law, each MWD member agency is
entitled to a percentage of MWD’s available water supplies at any
time based on all payments made to MWD throughout history –
“excepting the purchase of water.”
The court found that the Water Authority has been purchasing
transportation service from MWD to convey water supplies the Water
Authority buys from the Imperial Irrigation District and from
lining the All American and Coachella canals in the Imperial
Valley, rejecting MWD’s argument that the Water Authority’s
transfer supplies were purchases of MWD water that should therefore
be excluded from the calculation of preferential rights. Correct
assessment of the Water Authority’s preferential rights will mean
access to tens of thousands of acre-feet of water per year for the
San Diego region, a significant increase in supplies.
As the prevailing party in the lawsuit, the Water Authority
plans to file a motion to recover its attorney’s fees and costs
from MWD. The Water Authority is represented by Keker & Van
Nest of San Francisco and by Brownstein Hyatt Farber Schreck, a
national firm with offices in San Diego.
The Water Authority’s Board of Directors already has determined
that the agency will deduct its litigation expenses and return the
remaining money to its 24 member agencies in proportion to their
payment of MWD’s illegal overcharges over the four years in
dispute. MWD has said it will appeal, and that will delay refunding
of the Water Authority’s overpayments.
Additional information about the case, including important court
documents, is posted at www.sdcwa.org/mwdrate-challenge.
Litigation background
The Water Authority’s lawsuits stem from historic agreements the
agency signed in 2003 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 its 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.
MWD’s current rates were expressly designed to protect its
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 to the benefit
of its 25 other member agencies. 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 in the December 2013
Phase 1 trial 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.
MWD asserted in court that it can set 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.
On April 24, 2014, Judge Karnow issued a final statement of
decision in Phase 1 of the trial that said MWD violated
cost-of-service requirements in California’s statutes and common
law when setting rates for 2011, 2012, 2013 and 2014. He also said
MWD’s 2013 and 2014 rates violate Proposition 26, approved by
voters in November 2010 and embodied in the California Constitution
as Article 13C. Proposition 26 shifted the burden to public
agencies to prove they are not charging more than the actual cost
of the services they provide.
After the April 2014 ruling, the Water Authority was forced to
file another lawsuit because MWD set its rates for 2015 and 2016
using the same methodology and cost allocation declared by the
court to be illegal. That case has been stayed by stipulation of
the parties pending the final outcome of the current cases.
The San Diego County Water Authority is a public agency serving
the San Diego region as a wholesale supplier of water from the
Colorado River and Northern California. The Water Authority works
through its 24 member agencies to provide a safe, reliable water
supply to support the region’s $218 billion economy and the quality
of life of 3.2 million residents.
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version on businesswire.com: http://www.businesswire.com/news/home/20150828005732/en/
San Diego County Water AuthorityMike Lee,
858-522-6703 (office) or 760-208-0588
(cell)Mlee@sdcwa.orgorKeker & Van NestDan Purcell, 415-391-5400
(office)