From 2010 to 2014, the San Diego County Water Authority (SDCWA) has filed three lawsuits against the Metropolitan Water District of Southern California over water rates approved by Metropolitan’s Board of Directors.
What is the current status of the 2010 and 2012 cases?
The court may schedule trial on the remaining claims (breach of contract and preferential rights) to occur later this year or early 2015.
What is the current status of the 2014 case?
• The lawsuit was filed on May 30 and is in its preliminary phase.
• The lawsuit contains rate claims and a breach of contract claim that mirror the claims in the 2010 and 2012 cases.
Pricing Water Fairly in Southern California
As the primary provider of imported water for a six-county region, the Metropolitan Water District of Southern California and its Board of Directors must fairly allocate the costs of water through its rate structure. More than 15 years ago, Metropolitan began a comprehensive three-year process with extensive public input to develop a new regional pricing system for its 26 member public agencies that provide water to 19 million residents. The new pricing system was put into effect in 2003. After seven years, SDCWA, a member agency, first sued Metropolitan to challenge the allocation of costs within its rate structure. Each of SDCWA’s three lawsuits (2010, 2012, and 2014) challenges Metropolitan’s rates for the subsequent two years. Numerous member agencies have joined the cases in support of Metropolitan
At Issue: San Diego’s Above-Market Water Purchase
A key issue and motivation for SDCWA’s lawsuits is SDCWA’s agreement to purchase conserved water from the Imperial Irrigation District (IID). SDCWA chose to pay more for IID water than it would for Metropolitan’s water, supposedly to achieve a degree of water independence and additional reliability. However, SDCWA has no pipeline network to transport this water from IID to San Diego County – although it could have and still can choose to construct one – so it currently can only use Metropolitan’s facilities. Metropolitan agreed to accommodate SDCWA’s request to exchange the IID water for Metropolitan water, at a set price that SDCWA proposed based on Metropolitan’s rates. While the IID water comes from the Colorado River Aqueduct, the water that Metropolitan delivers to SDCWA in its place has less salinity and is a blend of both Colorado River and Northern California water. Through its lawsuits, SDCWA now seeks to change the agreed price for the exchange water, by arguing that Metropolitan’s rates are unlawful. SDCWA’s lawsuits seek to shift SDCWA’s agreed cost for the exchange water to consumers in Los Angeles, Orange, Ventura, Riverside and San Bernardino counties. SDCWA claims this cost is over $150 million to date, and will amount to $2 billion over the contract term. Of course, consumers in those areas are not inclined to fund SDCWA’s business decision to pay more to purchase and exchange IID water.
Transporting Water: The Primary Cost
The bulk of the water that Metropolitan delivers comes at relatively little cost for the water itself; the cost is in the construction, operation and maintenance of facilities to transport and deliver the supplies. Metropolitan gets its water from the Colorado River – over 200 miles to the east – and from the State Water Project’s Feather River system in Northern California – over 400 miles away. This water moves through a complex system of pipes, canals and aqueducts. The water is lifted hundreds of feet over mountains and hills by massive pumps. To fund and maintain the State Water Project transportation system, Metropolitan must pay significant fixed transportation costs to the state every year, regardless of whether Metropolitan receives any water. SDCWA’s lawsuits seek to avoid paying its share of building and maintaining this transportation system – at the expense of the system’s other users.
Water’s Real Costs
Metropolitan sets rates through an open and transparent process that assures equity and fairness throughout its 5,200-square-mile service area. Metropolitan’s Board of Directors is comprised of representatives from each of Metropolitan’s 26 member agencies, thus representing the region as a whole. The member agencies rely on this rate system to evenly collect costs across the region. The water system funded through these rates provides Southern California with a reliable supply of high quality water that benefits all residents and businesses and serves the region’s $1 trillion economy.
Metropolitan’s rate structure separates or “unbundles” its rates and charges to provide transparency and clearly show what service member agencies receive, what that service costs and what they pay for it. As an example, the cost to transport water is paid in part through the System Access Rate, reflecting the cost of operating, maintaining and investing in the basic infrastructure. In addition, the System Power Rate collects the cost to pump water through the Colorado River Aqueduct and from Northern California. Also, all Metropolitan deliveries include the Water Stewardship Rate, which funds Metropolitan’s conservation, recycled water and other local resource development programs. Those programs create capacity in Metropolitan’s system to enable delivery of additional water, such as the exchange water, and avoid costs to build and maintain further transportation facilities. Metropolitan also has a Water Supply Rate, reflecting Metropolitan’s cost to acquire water.
In addition to challenging why it should share in the cost of building and maintaining the necessary water transportation system, SDCWA argues that it should not have to pay the Water Stewardship Rate as part of Metropolitan’s transportation (delivery) charges. Exempting SDCWA’s exchange water from these charges would simply mean that everyone else outside of San Diego County would have to pay more for conservation, recycling and other local resource development, as well as for operating and maintaining a reliable delivery system.
At Risk: A Regional Approach to Water Reliability
Metropolitan has built and funded a water supply system that is the backbone of the region’s $1 trillion economy. This complex system has been built and maintained over more than 80 years through Metropolitan’s cooperative, regional, cost-share model. SDCWA’s lawsuits seek to undermine this proven and successful regional approach and replace it with cost-shifting strategies that attempt to benefit one community over another. Outside of San Diego, there is overwhelming support for Metropolitan’s current rate structure which reflects an equitable and regional approach.
Metropolitan obtained the dismissal of four claims in SDCWA’s 2010 case before trial (breach of fiduciary duty, breach of the covenant of good faith and fair dealing, a challenge to a Rate Structure Integrity provision in contracts, and a claim that Metropolitan’s rates violate Proposition 26).
In December 2013, the final hearing/trial on SDCWA’s rate claims in the 2010 and 2012 cases took place. In April 2014, the trial court issued its decision, ruling in SDCWA’s favor on two claims and in Metropolitan’s favor on one claim. The court found there was not sufficient evidence to support allocation of State Water Project transportation costs and the Water Stewardship Rate to Metropolitan’s transportation rates rather than its supply rate; and rejected SDCWA’s claim that Metropolitan’s rates do not properly account for “dry-year peaking” costs. The trial court’s rulings are not binding and only a final appellate court decision has binding effect. Metropolitan disagrees with the rulings against it and is confident that the appellate court will reverse. Moreover, only Metropolitan’s Board of Directors, not a court, may re-set Metropolitan’s rates.
The court has not yet set a trial date on two remaining claims in the 2010 and 2012 cases: breach of contract and preferential rights. The 2014 case was filed on May 30.