"Preferential rights" is a formula contained in Metropolitan Water District of Southern California's Act enabling calculation of the amount of water to which each member agency is legally entitled. Under Section 135, each MWD member agency has a preferential right to a percentage of MWD’s available water supplies based that provision of the MWD Act.
A member agency's "preferential right" was intended to be based on its payments toward MWD's capital and operating costs. When MWD was established in 1926 and up to the early 1960s, the bulk of these costs were paid through member agencies' property taxes. More than 80 years later, however, the bulk of MWD's capital and operating costs are paid from revenues derived from water sales to member agencies. Yet, Section 135 limits the calculation of preferential rights to those revenues that are unrelated to the "purchase of water."
In addition, even without the inclusion of purchase of water, the Water Authority believes MWD has miscalculated the Water Authority’s preferential right to MWD water that resulted in understating the region’s right to purchase MWD water by tens of thousands of acre-feet per year. Phase 2 of the Water Authority’s rate litigation will address this discrepancy.
Currently, the Water Authority pays about 22 percent of MWD's total revenue, but has preferential rights to only 18.27 percent of MWD's water supply.