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San Diego County Water Authority vs. Metropolitan Water District of Southern California et al
From 2010 to 2014, The San Diego County Water Authority has filed three lawsuits against the Metropolitan Water District of Southern California over water rates approved by Metropolitan’s Board of Directors.
On Nov. 18, 2015, the trial court issued its judgment and a peremptory writ of mandate in the first two lawsuits. Metropolitan and SDCWA each filed notices of appeal as to parts of the case adverse to each. Appellate oral argument on the parties' appeals took place on May 10, 2017. The Court of Appeal issued its decision on June 21, 2017 (Read Metropolitan's news release). The third lawsuit, which mirrors the first two, has been stayed.
Significantly, the Court of Appeal held the inclusion of Metropolitan’s system-wide transportation costs, including transportation charges paid to the State Water Project, in the calculation of its transportation rates and wheeling rate does not, as the trial court held, violate the wheeling statutes, Proposition 26 (Cal. Const., art. XIIIC, § 1, subd (e)), Government Code section 54999.7, subdivision (a), the common law, or the terms of the parties’ exchange agreement.
On Sept. 27, 2017, the California Supreme Court denied San Diego County Water Authority’s Petition for Review in the rate litigation, declining to consider the Court of Appeal’s June 2017 decision (Read Metropolitan's news release). The Court of Appeal’s decision is therefore final.
The 2010 and 2012 cases will now be returned to the trial court for a redetermination of damages, interest, and attorneys’ fees, including the question of whether there is a “prevailing party” entitled to fees, as ordered by the Court of Appeal.
The linked Fact Sheet contains a summary of the Court of Appeal's key rulings.
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 100% 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.
In April and May 2015, the trial on SDCWA's claims for breach of contract to exchange water and miscalculation of preferential rights to purchase water in the 2010 and 2012 cases took place. In August 2015, the trial court issued its decision, ruling in SDCWA's favor on both claims. The court awarded SDCWA contract damages of $188,295,602 and prejudgment interest of $46,637,180.
The court’s Nov. 18, 2015 judgment and peremptory writ of mandate contain its final rulings in the 2010 and 2012 cases. On Nov. 19, 2015 MWD appealed the rulings against it. On Dec. 7, 2015, SDCWA appealed the ruling against it concerning the Rate Structure Integrity provision. On Dec. 17, 2015, the member agency parties appealed the rates ruling.
The trial court's rulings, including its rates ruling and its damages award, are not binding and only a final appellate court decision has a binding effect. Metropolitan disagrees with the rulings against it and is confident that the appellate court will reverse. Moreover, only Metropolitan's b, not a court, may re-set Metropolitan's rates.
Pricing Water Fairly in Southern California
As the primary provider of imported water for a six-county region, Metropolitan and its Board of Directors must fairly allocate the costs of water through its rate structure. More than 20 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 nearly 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. SDCWA chose to pay more for IID water than it would for Metropolitan’s water 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 plus canal lining water for Metropolitan water, at a set price that SDCWA proposed based on Metropolitan's rates. Metropolitan provided SDCWA with valuable benefits as part of this agreement: $235 million and nearly 80,000 acre-feet of canal lining water per year for 110 years.
While the IID and canal lining water comes from the Colorado River Aqueduct, the water that Metropolitan delivers to SDCWA in its place ― often before SDCWA has made water available to Metropolitan ― 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 could amount to over $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 ― only 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 Metopolitan receives any water. SDCWA's lawsuits seek to avoid paying its share of 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, who represent the region as a whole. 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's Offer to Compromise SDCWA v. Metropolitan, et al. Litigation
SDCWA Special Board Meeting on (Dec. 19, 2019)
Metropolitan News Releases
Articles/Opinions and Metropolitan Responses
October 14, 2010
San Diego Union-Tribune, Op-ed by Jeffrey Kightlinger
Mud in the Waters: Law Firms Win, Ratepayers Lose