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MWD Rate Challenge
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On February 17, 2012, San Francisco Superior Court Judge Richard A. Kramer reaffirmed his order granting discovery in the San Diego County Water Authority's lawsuit challenging 2011 and 2012 water rates adopted by the Metropolitan Water District of Southern California. In reaffirming his prior ruling, Judge Kramer rebuffed attempts by MWD to assert limits on discovery before the process has even commenced.
"We believe discovery in this case will shine a light on the secretive and improper decision-making process in place at MWD, the largest public water agency in the nation,” Water Authority Board Chair Michael T. Hogan said. “These practices unfairly and illegally discriminate against the Water Authority and its ratepayers to enrich MWD’s other 25 member agencies. And, they compromise MWD’s integrity and its responsibilities as a public agency, which is to conduct its business in the board room, not the back room.”
In a pretrial court hearing January 6, Judge Kramer granted a motion by the Imperial Irrigation District and the Water Authority to permit discovery -- subpoenas, depositions, interrogatories and document production -- in the case. MWD had opposed those motions, arguing the court could only consider a far more narrow set of documents MWD itself produced.
Judge Kramer also denied without prejudice a motion by MWD to bifurcate -- i.e. try separately -- the first three of six causes of action in the case and defer trial on the three remaining causes of action. The judge said he will consider how the case should be tried after the parties complete discovery.
During the February 17 court session, Judge Kramer ordered the parties to work with a special master to develop and implement a plan for discovery. A further case management conference was set for April 13, 2012.
MWD’s rate structure illegally overcharges San Diego County ratepayers tens of millions of dollars annually for the transportation of water and forces it to subsidize the water costs of MWD's other 25 member agencies.
In addition to three causes of action challenging the 2011 and 2012 rates, the Water Authority’s lawsuit claims MWD breached its 2003 contract with the Water Authority in which it pledged to follow applicable law in charging the Water Authority and its ratepayers for transportation of water. Another claims MWD has unlawfully under-calculated the Water Authority’s Preferential Rights to purchase water. The Water Authority is also challenging MWD’s imposition of a retaliatory contract provision designed to prevent the Water Authority from challenging MWD’s unlawful rates in a court of law.
The Imperial Irrigation District and the San Diego-based Utility Consumer Action Network (UCAN) have joined the case as interested parties on the Water Authority’s side. Eight MWD member agencies joined the case on MWD's side.
The stakes in the litigation are estimated at between $1.3 billion and $2.1 billion over a 45-year period. As part of the 2003 contract that the Water Authority alleges MWD has breached, MWD is required to place all disputed payments made by the Water Authority into an escrow account, which MWD cannot spend during the pendency of the litigation. If the Water Authority wins the case, MWD will be required to return those funds to the Water Authority. By the end of 2012, the escrow account will grow to approximately $78 million. By the end of 2013, the balance will grow to approximately $135 million.
Protecting Ratepayers
The Water Authority is suing the Metropolitan Water District of Southern California to protect San Diego County ratepayers from water rate overcharges. The Water Authority believes that MWD set rates that overstate the cost of transporting water while undercharging for supply costs. If left unchallenged, these illegal overcharges will cost Water Authority ratepayers as much as $217 million annually by 2021. The case, which was originally filed in 2010, has been designated as complex and is assigned to San Francisco County Superior Court Judge Richard Kramer.
Background
MWD’s Misallocation of Costs
MWD, our largest supplier, improperly overcharges for the transportation of water and uses that money to subsidize the cost of MWD water. This violates California’s Constitution, other state law, and standard water utility practice.
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Water conserved by the All-American Canal lining project is an important part of the Water Authority's Colorado River water supplies.
MWD purchases more than half of its water from the State Water Project under a 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 water through MWD facilities. 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.
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
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
Financial Impacts to San Diego County Ratepayers
MWD’s approved rate structure will cause significant financial harm to the San Diego region. San Diego County will lose up to $40 million in 2012 through MWD’s overcharges; those overcharges may grow to as much as $217 million annually as the Water Authority’s independent Colorado River supplies reach the maximum annual amount in 2021.
Negative Impact to Conservation and Statewide Water Supply Reliability Efforts
MWD’s rate structure disguises the true price of imported water and impedes cost-efficient water conservation and long-term regional and statewide water supply reliability efforts. By charging an artificially low rate for its water supplies, MWD discourages water conservation and local agency investments in cost-effective water supply projects. These local investments could improve Southern California’s water supply reliability and reduce the region’s exposure to droughts or regulatory restrictions on imported water.
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
*Based on annual water sales of 600,000 acre-feet and $40 billion cost to fix the Bay-Delta
