Court Grants Discovery in Water Authority’s Rate Case Against MWD

January 07, 2012

San Francisco Superior Court Judge Richard A. Kramer today granted motions to allow discovery in the San Diego County Water…

San Francisco Superior Court Judge Richard A. Kramer today granted motions to allow discovery in the San Diego County Water Authority’s case against the Metropolitan Water District of Southern California, motions which MWD had vigorously opposed.  The judge also denied without prejudice MWD’s motion to bifurcate the case, saying he will consider how the case should be tried after the parties complete discovery.

“This is a good outcome,” Water Authority Board Chair Michael T. Hogan said. “We continue to believe that having all six Water Authority causes of action tried in a single trial will expedite a final decision. Trying all of the Water Authority’s causes of action in the same trial will provide a more complete picture to the court about how MWD’s governance is broken, allowing the self-dealing system in place there to illegally set rates and take other actions that harm not only San Diego County ratepayers, but all of Southern California.”

During Friday’s court session, Judge Kramer asked the parties to work with a special master to develop and implement a plan for discovery.  He expressly declined to impose any limitations on the Water Authority’s right to conduct discovery into bias or corruption at MWD, despite repeated requests to do so by MWD’s counsel.   A further case management conference was set for February 17, 2012.

Today’s rulings were the continuation of a hearing on Wednesday, January 4, in which Judge Kramer allowed three additional causes of action to be added to the lawsuit that the Water Authority filed in June 2010 after MWD adopted its 2011 and 2012 water rate structure.  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 member agencies.

During Wednesday’s hearing, Judge Kramer sustained MWD’s demurrer without leave to amend on two other claims added by the Water Authority in October 2011 on technical grounds, but left open the possibility for the Water Authority to bring additional claims based on MWD’s systematic discriminatory and retaliatory business practices.  He also denied MWD’s attempt to bring an anti-SLAPP motion against the Water Authority, ruling that the Water Authority’s lawsuit against MWD was not an attempt to impede free speech.

“Contrary to MWD’s assertions, the Water Authority’s motives are not to stifle speech, but to shine a light on the secretive and improper decision-making process in place at MWD, the largest public water agency in the nation,” Hogan said. “These practices, which unfairly and illegally target the Water Authority and its ratepayers to enrich MWD’s other 25 member agencies, 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 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.  MWD did not challenge the cause of action related to the retaliatory contract provision, and Judge Kramer said at the hearing that he intends to rule on the question of its legality and constitutionality.

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.

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 nearly $80 million.

“We are fighting to protect our region’s ratepayers and our $186 billion economy,” Hogan said.  “If we are successful, MWD will be forced to return tens of millions of illegally collected revenues to the Water Authority, which can then be invested in water supplies and infrastructure in San Diego County.”

To learn more about the lawsuit and to read the legal documents filed in the case, click here:

  • The San Diego County Water Authority sustains a $268 billion regional economy and the quality of life for 3.3 million residents through a multi-decade water supply diversification plan, major infrastructure investments and forward-thinking policies that promote fiscal and environmental responsibility. A public agency created in 1944, the Water Authority delivers wholesale water supplies to 23 retail water providers, including cities, special districts and a military base.

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