$44.4 Million in MWD Overcharges Being Returned to Local Water Agencies

February 25, 2021

The San Diego County Water Authority’s Board of Directors in February 2021 announced a plan to distribute a rebate of $44.4 million to its 24 member agencies across the region after receiving a check for that amount from the Los Angeles-based Metropolitan Water District of Southern California to pay legal damages and interest.

The money resulted from the Water Authority’s decade-long rate case litigation in state Superior Court seeking to compel MWD to set legal rates and repay overcharges. The Water Authority won several critical issues in cases covering 2011-2014 and was deemed the prevailing party, which means the agency is also owed legal fees and charges in addition to the recent damages and interest payment from MWD. The court rulings will also help avoid future overcharges and thereby minimize future disputes over MWD’s unlawful Water Stewardship Rate for transporting the Water Authority’s independent water supplies through MWD facilities. Those charges – if they had continued – would have cost San Diego County residents more than $500 million over the life of the Water Authority’s water delivery contract with MWD.

Per the February 2021 decision by the Water Authority’s Board, the $44.4 million will be returned to member agencies in proportion to their overpayments between 2011-2014. The Water Authority does not have a say in how member agencies use the refunds. The amount of legal fees and costs owed to the Water Authority is yet to be determined. In addition to damages and interest, the rate case lawsuits generated other substantial benefits, such as requiring an increase in the Water Authority’s preferential rights to MWD water by approximately 100,000 acre-feet a year, equivalent to about twice the annual production of the $1 billion Carlsbad Desalination Project.

In February 2020, the Water Authority’s Board of Directors voted to dismiss certain issues from the litigation after securing more than $350 million in local project subsidy benefits for the San Diego region. In doing so, the Water Authority acknowledged the MWD Board action to stop imposing its Water Stewardship Rate for transporting the Water Authority’s independent supplies, thus resolving for now that issue in future rate years.

As the lawsuits wind down, the Water Authority is working collaboratively with MWD member agencies across Southern California to update MWD’s long-term water resource and financial plans. MWD’s Integrated Resources Plan, known as the IRP, will be the agency’s roadmap for the future. The Water Authority is advocating for inclusion of updated data and plans by many MWD member agencies to develop local water supplies such as the Water Authority and its member agencies have done over the past two decades and will continue to do in the future.

In January 2021, the San Francisco Superior Court has ruled the San Diego County Water Authority is the prevailing party in the agency’s first two lawsuits to be heard challenging rates and charges set by the Los Angeles-based Metropolitan Water District of Southern California. The order entitles the Water Authority to recover its attorneys’ fees and costs in those cases, in addition to a $44 million damage and interest award made earlier.

“San Diego prevailed, and the judgment not only benefits its own ratepayers but all of the nearly 19 million people in Metropolitan’s service area because enforcing cost-of-service principles serves the interest of all ratepayers,” said Superior Court Judge Anne-Christine Massullo in her Jan. 13 order, which can be appealed. The exact amount of recoverable fees will be decided later.

Litigation Produces Significant Benefits

Landmark litigation initiated by the San Diego County Water Authority in 2010 was designed to protect San Diego County ratepayers from rates and charges set by MWD. MWD owns the only large-scale conveyance facilities in Southern California for transporting water from the Colorado River, and the Water Authority pays MWD to transport its independent Colorado River supplies to San Diego County. The lawsuits are focused on the terms under which MWD moves that water.

Water ratepayers across the San Diego region derived significant benefits from the litigation. Rulings in the 2011-2014 cases include:

  • MWD must pay the Water Authority approximately $45 million for Water Stewardship charges MWD added to the transportation rates it illegally charged the Water Authority. MWD used this money to fund local supply and conservation projects for some MWD member agencies. The decision also prevents MWD from imposing more than $15 million in illegal charges annually going forward.  
  • MWD cannot enforce a contract clause it used to disqualify local water supply projects in San Diego County from receiving funding because the courts determined it was unconstitutional.
  • The Water Authority is entitled to approximately 100,000 acre-feet of additional MWD water annually – about twice the production of the $1 billion Claude “Bud” Lewis Carlsbad Seawater Desalination Plant. The court determined that MWD unlawfully under-calculated the Water Authority’s statutory water right. As a result of the recalculation, the Water Authority’s preferential right to MWD water increased from 18.53 percent to 24.22 percent in fiscal year 2018.
  • A determination that MWD breached its contract with the Water Authority by not setting legal rates.

The Water Authority also challenged MWD’s allocation of its State Water Project supply cost to the transportation rate it charges to move the Water Authority’s independent Colorado River supplies. While the trial court in 2015 found those rates to be illegal, that finding was overturned by the Court of Appeal in June 2017. The Water Authority’s petition to the California Supreme Court to review the Court of Appeal ruling was denied in September 2017, meaning the Water Authority lost on that issue.

The Water Authority has additional cases challenging MWD’s rates from 2015-2020 that have been stayed in Superior Court while the appellate proceedings were ongoing.