MWD Rate Challenges

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Major Victory Affirmed in Rate Litigation Against MWD

On April 24, Superior Court Judge Curtis E. A. Karnow issued his final statement of decision in Phase 1 of the Water Authority's legal challenge to rates set by the Metropolitan Water District of Southern California. Judge Karnow upheld and strengthened his tentative ruling issued Feb. 25. Judge Karnow ruled that MWD's rates for 2011, 2012, 2013 and 2014 violate cost of service requirements of California’s Constitution, statutes and common law.  Specifically, Judge Karnow’s final statement of decision is that MWD’s rates violate:

  • Proposition 26;
  • the Wheeling Statute;
  • Government Code Section 549997(a); and,
  • Common law rules that apply to ratemaking.

The final ruling came in lawsuits filed in 2010 and 2012 by the San Diego County Water Authority challenging rates imposed by MWD for 2011-2014.

A trial date has not yet been set for Phase 2, which will cover the  Water Authority’s claims based on breach of contract and preferential rights.

Read the judge's final decision here.

Over the five-day trial held Dec. 17-23, 2013 in San Francisco Superior Court, the Water Authority’s attorneys presented reams of evidence and witness testimony that proved MWD’s rates artificially inflate the cost of its water transportation services by improperly including unrelated expenses. Numerous California statutes, the California Constitution and common law all require that public agencies such as MWD base their rates on the actual costs of the services provided.

Under MWD’s current rates, the region’s ratepayers will be overcharged this year by $54 million – overcharges that could grow to more than $217 million annually by 2021 and ultimately exceed a combined $2 billion. MWD’s flawed rates create overcharges for San Diego County for the transportation of water and corresponding undercharges for the water MWD sells to its member agencies.

The Water Authority first sued MWD in June 2010 for adopting illegal rates that are not based on the costs of providing the services for which they are collected. The Water Authority filed another lawsuit in June 2012 because the 2010 case had not been resolved and MWD had adopted rates for 2013 and 2014 based on its same flawed allocation.

On May 30, 2014, the Water Authority filed a third legal challenge against MWD’s rates following a decision by the MWD Board to adopt rates for 2015 and 2016 using the same illegal methodology it used the prior four years.

 
News Releases

Water Authority Sues Metropolitan Water District over Rates for 2015 and 2016 - May 30, 2014

Final Ruling: Water Authority Wins Landmark Rate Litigation Against Metropolitan Water District - April 25, 2014

MWD Adopts Unnecessary Rate Increases for 2015 and 2016 While Over-Collecting $350 Million from Ratepayers - April 8, 2014

San Diego County Water Authority Wins Landmark Ruling in Rate Challenge Against Metropolitan Water District of Southern California - February 25 2014

Landmark Trial Over MWD's Rates Concludes in Superior Court - December 23, 2013

Trial Begins Tuesday in Water Authority’s Lawsuits Challenging MWD’s Rates - December 16, 2013

Water Authority Seeks Pre-Trial Decision Declaring MWD’s ‘Rate Structure Integrity’ Clause Illegal and Unenforceable - September 20, 2013

Court Denies MWD Motion Seeking to Exempt its Rates from Proposition 26 - September 20, 2013

Water Authority’s Rate Lawsuits Against MWD Go to Trial Dec. 17 - July 24, 2013

Judge Limits MWD’s Discovery Demands in Litigation Challenging its Rates - May 14, 2013

Judge Rules Prop. 26 does not Apply to 2010 Lawsuit Challenging MWD’s Rates - March 30, 2013

Water Authority Gains Ground in High-Stakes Lawsuit Against Metropolitan - Jan. 15, 2013

Two Water Authority Rate Cases Against Metropolitan Water District to be Coordinated - Nov. 9, 2012

Judge Rejects MWD Efforts to Avoid Discovery in Water Authority Rate Challenge - Aug. 3, 2012

Court Clears the Way for Water Authority's Lawsuit to Be Heard - July 2, 2012

Water Authority Files New Lawsuit Against Metropolitan Water District Challenging 2013 and 2014 Water Rates - June 8, 2012

Appellate Court Summarily Denies MWD Writ Petition to Prevent Discovery in Rate Case - April 19, 2012

San Diego County Water Authority Calls on MWD to Cut Spending and Cap Rate Hikes at 3 Percent - March 26, 2012

@MWDFACTS Twitter Feed Launched to Provide Immediate Access to Information about MWD’s Proposed Rate Increases and Decisions - March 22, 2012

Appellate Court to Review Key Pre-Trial Decision in Water Authority Rate Case vs. Metropolitan Water District - March 16, 2012

Public Records Detailing Inner Workings of Metropolitan Water District “Secret Society” Now Available Online - March 15, 2012

Metropolitan Water District of Southern California to Vote on Rate Increases in April - March 13, 2012

Public Records Reveal Shadow Government Controlling the Metropolitan Water District of Southern California - March 12, 2012

Water Authority Launches “MWD Facts: The Truth About the Metropolitan Water District of Southern California” - March 7, 2012

Court Reaffirms Prior Order Granting Discovery in Water Authority’s Rate Case Against Metropolitan Water District of Southern California - Feb. 17, 2012

Court Grants Discovery in Water Authority’s Rate Case Against MWD - Jan. 6, 2012

Court Ruling Allows New Claims to Remain in Water Authority’s Case Against MWD - Jan. 4, 2012

Water Authority Expands its Lawsuit Against MWD- Oct. 27, 2011

Metropolitan Water District Cancels Funding for Local Water Supply Projects in Retaliation for Lawsuit Challenging its Rates - June 14, 2011

Water Authority Board Approves Filing a Lawsuit Against
 Metropolitan Water District Challenging Illegal Water Rates - June 10, 2010

 
Fact Sheet
Fact Sheet
 
Court Documents

Water Authority Joint CMC statement for the July 2, 2014 Case Management Conference - June 26, 2014

Rate Case Complaint (Petition for Write of Mandate and Related Relief) - May 30, 2014

Final Ruling - April 24, 2014

Tentative Ruling - Feb. 25, 2014

Water Authority's response to MWD's request for hearing on tentative ruling - April 10, 2014

MWD's objections to the tentative decision - March 27, 2014

Water Authority's objections to the tentative ruling - March 27, 2014

Tentative Determination and Proposed Statement of Decision on Rate Setting Challenges - February 25, 2014

San Diego's Post-Trial Brief - January 17, 2014

Attachments A & B to San Diego's Post-Trial Brief, January 17, 2014

MWD's Post-Trial Brief - January 17, 2014

Judge's Order on Motions in Limine - December 10, 2013

Order On Summary Motions - December 4, 2013

MWD's Reply in Support of Separate Statement of Undisputed Material Facts in Support of Motion for Summary Adjudication - November 21, 2013

MWD's Reply Brief in Support of MWD's Motion for Summary Adjudication - November 21, 2013

MWD's Reply to Water Authority's Response to MWD's Separate Statement of Undisputed Facts - November 21, 2013

Order Regarding Time at Trial - November 21, 2013

Water Authority Opposition to MWD's Motion for Summary Judgment in the 2012 case - November 12, 2013

Water Authority Opposition to MWD's Motion for Summary Judgment in the 2010 case - November 12, 2013

MWD Response to Water Authority Separate Statement of Undisputed Material Facts - November 12, 2013

MWD Opposition to Water Authority Motion for Summary Adjudication - November 12, 2013

Pre-Trial Rulings - November 5, 2013

Water Authority Response to MWD Motions in Limine - October 28, 2013

Water Authority Response to MWD's Pre-Trial Brief - October 28, 2013

MWD Reply to First Pretrial Briefs - October 28, 2013

MWD Motion In Limine #1 - October 18, 2013

MWD Motion In Limine #2 - October 18, 2013

MWD Motion In Limine #3 - October 18, 2013

MWD Motion In Limine #4 - October 18, 2013

MWD Motion In Limine #5 - October 18, 2013

MWD First Pretrial Brief - October 18, 2013

Water Authority Pretrial Brief - October 18, 2013

Order on Discovery Disputes - October 10, 2013

Memorandum of Points and Authorities in Support of Water Authority’s Motion for Summary Judgment - Sept. 20, 2013

Order Denying MWD's Motion for Judgment on Prop. 26 - September 20, 2013

MWD's Motion for Summary Judgment in the 2012 case - September 20, 2013

MWD's Motion for Summary Judgment in the 2010 case - September 20, 2013

MWD's Reply in Support of its Motion for Judgment - September 9, 2013

Water Authority’s Response to MWD’s Motion for Judgment - August 26, 2013

Water Authority’s Response to MWD’s Request for Judicial Notice - August 26, 2013

MWD’s Points and Authorities in Support of its Motion for Judgment, July 29, 2013

MWD Motion for Judgment on the Pleadings, July 29, 2013

Case Management Order - July 22, 2013

Joint Case Management Conference Statement - July 19, 2013

Judge’s Order Denying in Part and Granting in Part MWD’s Motion to Compel Discovery - May 13, 2013

MWD’s Reply in Support of its Motion to Compel - April 26, 2013

Judge's Order  granting Water Authority's Motion to Compel - April 23, 2013

Water Authority's Opposition to MWD's Motion to Compel - April 15, 2013

Water Authority Reply in Support of its Motion to Compel in the 2012 Case - April 12, 2013

Water Authority Reply in Support of its Motion to Compel in the 2010 Case - April 12, 2013

MWD's Answer to the Water Authority’s Third Amended Complaint - April 11, 2013

Order Granting MWD Motion to Strike - March 29, 2013

Water Authority Memo of Points and Authorities in Support of its Motion to Compel - March 27, 2013

Water Authority Separate Statement in Support of its Motion to Compel - March 27, 2013

MWD's Motion to Compel - March 27, 2013

MWD’s Reply to its Demurrer - March 18, 2013

Water Authority Opposition to Demurrer or Motion to Strike - March 11, 2013

MWD Support of Demurrers or Motion to Strike Portions of Water Authority’s Third Amended Complaint - February 22, 2013

Water Authority Third Amended Complaint - January 15, 2013

MWD’s Answer to the 2013 and 2014 Rate Case - Nov. 28, 2012

Water Authority Joint Case Management Statement - November 6, 2012

Water Authority Reply to Motion to Consolidate - November 2, 2012

MWD Reply to Motion to Stay the 2013/2014 case - November 2, 2012

MWD’s Opposition to Motion to Consolidate - October 29, 2012

MWD Stipulation to Strike Portions of the Complaint - October 24, 2012

Water Authority Motion to Consolidate the 2011/2012 and the 2013/2014 Cases - October 19, 2012

MWD Response to Water Authority’s First Set of Requests for Production of Documents - October 19, 2012

MWD Motion in Support to Stay the 2012 Action, October 16, 2012

Judge’s Order Re: De Novo Review of Discovery Management Recommendation #1 - September 17, 2012

Answer to the Second Amended Petition and Complaint Filed by the Defendant - July 12, 2012

Water Authority complaint challenging MWD’s 2013 and 2014 rates – June 8, 2012

Order Dissolving the Stay Previously Issued; Denying the Petition for Writ of Mandate - April 19, 2012

Second Amended Complaint - April 16, 2012

Rate Case Complaint (Petition for Writ of Mandate and Related Relief) - April 10, 2012

Demurrer to Petition for Writ of Mandate Overruled and In Part Sustained Without Leave to Amend; Anti-SLAPP Motion to Strike Denied, Jan. 4, 2012

MWD’s Reply in Support of Its Demurrer to and Motion to Strike – December 27, 2011

MWD’s Reply in Support of Its Motion to Bifurcate Validation Proceedings – December 27, 2011

Water Authority’s Opposition to MWD’s Demurrer and Anti-SLAPP Motion to Strike – December 20, 2011

Water Authority’s  Opposition to MWD’s Motion to Bifurcate Validation Proceedings – December 20, 2011

MWD Demurrer and Anti-SLAPP Motion to Strike –  December 2, 2011

MWD Motion to Bifurcate Validation Proceedings – December 2, 2011

Judge's Order Granting Water Authority Motion for Leave and Amended Complaint - Oct. 27, 2011

Water Authority Motion for Leave - Sept. 23, 2011

IID Responsive Trial Brief - Aug. 9, 2011

UCAN Responsive Trial Brief - Aug. 5, 2011

Demurrer overruled, Feb. 3, 2011

Rate Case Complaint (Petition for Writ of Mandate and Related Relief) - June 11, 2010

 
Correspondence and Consultant Reports

 

Background

Two decades ago, almost all of San Diego County’s water needs were met by a single supplier – the Los Angeles-based Metropolitan Water District of Southern California.  In 1991, after a multi-year drought severely limited water supplies, MWD cut water deliveries 30 percent to the San Diego region, severely impacted the local economy and quality of life. Delivery cuts of 50 percent were only averted by “Miracle March” rains. The Water Authority Board then set forth a course to develop a supply diversification strategy to ensure that the region was never again dependent on a single supplier for nearly all of its water.

The cornerstone of this diversification strategy is a set of historic agreements the Water Authority signed in 2003 to secure its own sources of water from the Colorado River. Under long-term agreements, ranging from 45 to 110 years, the Water Authority purchases water from the Imperial Irrigation District and receives other independent water supplies from relining the All-American and Coachella canals. In order to get this water to San Diego County, the Water Authority uses pipelines that are controlled by MWD.

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.

MWD’s Misallocation of Costs

The Water Authority believes that MWD is overcharging to transport this water and is using that money to subsidize the cost of water MWD sells to its member agencies. This practice violates the California Constitution, other state law and standard water utility practice.


Water conserved by the All-American Canal lining project is an important part of the Water Authority's Colorado River water supplies.

About half of MWD's supplies come from its purchases from the State Water Project under a supply contract with the Department of Water Resources. Instead of treating these purchases as a cost of water, MWD allocates nearly 80 percent of the cost to charges it imposes for the transportation of the Water Authority's water through MWD facilities - even though MWD does not own the state system, and not a drop of Water Authority's own Colorado River water supplies touches that system. 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 a water conservation agreement with the Imperial Irrigation District, and also from lining sections of the All-American and Coachella Canals.

impact of MWD Overcharges to Water Authority Ratepayers*
*Based on annual water sales of 600,000 acre-feet and $40 billion cost to fix the Bay-Delta

Financial Impacts to San Diego County Ratepayers

MWD’s illegal rates cause significant financial harm to the San Diego region. The overcharges may grow to as much as $217 million annually as the Water Authority’s independent Colorado River supplies reach their peak in 2021. Collectively, these overcharges could amount to $2.1 billion over the life of the agreements.

Protecting Ratepayers

In 2010, after years of trying to work with MWD to resolve concerns with MWD’s-rate setting practices, the Water Authority filed a lawsuit against MWD for its 2011 and 2012 rates.  The Water Authority filed a second suit in June 2012, after MWD set rates for 2013 and 2014 that were based on the same flawed cost-of-service methodology as the first action. The second lawsuit was necessary because MWD’s delays in the first lawsuit slowed its resolution.

The Water Authority’s two lawsuits against MWD present common factual and legal elements. Each lawsuit asserts that MWD’s rates assign water supply costs to transportation rates in violation of state law and the state Constitution. Both cases also allege that the water rates set by MWD discriminate against the Water Authority by artificially inflating the price charged for “wheeling” (or transporting) water through MWD’s pipes if it is purchased from a water supplier other than MWD.

Why are MWD’s Rates Illegal?

MWD is legally required to charge rates that are reasonably related to the costs of services provided and reasonably allocated among its member agencies according to the benefit they receive from particular services. 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 transportation Rate.

The lawsuits allege:

Range of MWD Overcharges in 2021
The financial impact of MWD's overcharges could vary greatly depending on potential costs to fix the Bay-Delta and incentives to develop local water supplies
  • MWD’s rates misallocate MWD’s “supply” costs by characterizing the water MWD purchases under its contract with the State Water Project as “transportation” when in fact MWD does not own or operate any of the facilities that deliver State Water Project water to Metropolitan. The State of California owns and operates those facilities.
  • MWD’s rates misallocate MWD’s “supply” costs by characterizing its subsidy investments in water conservation and local water supply projects, such as recycled water and seawater desalination, as “transportation” costs.
  • At the urging of self-interested member agencies, MWD’s board has set invalid rates without taking into account where the costs should be properly allocated.  MWD is not following clear industry standards or California law.
  • MWD’s illegal rates breach a 2003 contract with the Water Authority in which MWD promised to charge the Water Authority for water transportation services in accordance with state law.
  • The 2012 lawsuit additionally alleges that MWD violated Proposition 26, a voter-approved measure passed in November 2011. Prop. 26  aims to prevent public agencies from passing hidden taxes by ensuring that rate increases are tied to cost of service.
  • In its 2012 lawsuit, the Water Authority is also seeking to address another major flaw in MWD’s rates: MWD has failed to properly recover tens of millions of dollars annually in operational and other costs it incurs as a “standby” supplier for member agencies whose water demands vary greatly from year to year.  MWD has not performed adequate studies or calculated the costs of purchasing, storing and delivering water supplies to meet the varying annual needs of its member agencies. Instead, MWD misallocates many of these costs to its other rates. MWD's current rate structure is akin to allowing member agencies getting the insurance benefits, without ever paying for the service. This practice forces steady MWD customers, such as the Water Authority, to pay a disproportionate share of the costs of providing this stand-by service.  The annual benefit is estimated at $40 million,  just for the city of Los Angeles, which has historically altered its purchases of MWD water by more than 200,000 acre-feet from one year to the next.

 

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