Water Authority Prevails in Litigation, Returns $44.4 Million to Member Agencies

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 $44.4 million in damages and interest paid by MWD. The Water Authority’s Board of Directors in February 2021 voted to distribute rebates totaling $44.4 million to its 24 member agencies in proportion to their overpayments between 2011-2014.

The Water Authority filed lawsuits between 2010 and 2018 challenging water rates and charges as they were set and imposed by MWD on San Diego County agencies and their ratepayers. After a favorable court ruling invalidating MWD’s Water Stewardship Rate on the Exchange Agreement, the Water Authority worked with MWD to try to resolve the remaining issues. The MWD Board promised to fund almost $500 million in local water supply projects in San Diego County and the Water Authority agreed to dismiss claims against MWD’s Water Stewardship Rate on supply, which is used to fund local projects under the MWD program.

Rate Litigation Overview

A Superior Court judge in August 2020 awarded the Water Authority $44,373,872.29 for two cases against the Metropolitan Water District of Southern California covering rates paid by San Diego County ratepayers during 2011-2014. After receiving a check for that amount from MWD, the Water Authority’s Board voted to return the money to member agencies.

The award included $28,678,190.90 in damages for MWD’s breach of contract for the four years at issue, plus pre-and post-judgment interest. With a judgment issued in the first two cases, the Water Authority is also working to narrow the scope of the remaining 2014, 2016 and 2018 cases (a 2017 case has already been dismissed).

Entry of final judgment caps a 10-year effort by the Water Authority Board of Directors on behalf of San Diego County ratepayers, proving once again that the region is stronger together in charting its water future. While the damages and interest award is important, the entry of judgment will also help avoid future overcharges and thereby minimize future disputes based on rulings by the Court of Appeal. MWD’s improper 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.

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, beginning late last year. In doing so, the Water Authority acknowledged the MWD Board action to stop imposing the district’s Water Stewardship Rate as a charge for transporting the Water Authority’s independent water supplies through MWD facilities, thus resolving for now that issue in future rate years. Consistent with the Water Authority Board’s direction, its attorneys are taking the steps necessary to narrow the litigation and have recently dismissed one case in its entirety.

As the lawsuits continue to wind down, the Water Authority is working collaboratively with MWD member agencies across the district’s six-county service area to update MWD’s long-term water resource and financial planning. MWD’s Integrated Resources Plan, known as the IRP, will be its roadmap for the future, factoring in updated data and plans by many MWD member agencies to develop local water supplies as the Water Authority and its member agencies have done over the past two decades and will continue to do in the future.

linkFeb. 25, 2021, news release MWD rate case rebates linkJan. 13, 2021, news release on Judge Massullo’s order download this documentJan. 13, 2021, Order by Superior Court Judge Anne-Christine Massullo download this documentAug. 13, 2020, judgment in the 2010-2012 cases download this documentFeb. 27, 2020, letter from the Water Authority to MWD linkFeb. 27, 2020, news release from the Water Authority download this documentJan. 23, 2020, comparison of MWD and Water Authority offers download this documentDec. 19, 2019, settlement offer letter from the Water Authority linkNov. 21, 2019, news release about the Water Authority’s settlement efforts download this documentMWD’s 998 Offer from November 2019 download this documentOct. 25, 2018, letter from Chair Madaffer to the MWD Board

Litigation 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:

1

$45 Million for Water Stewardship Charges

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.

2

Funding of San Diego County Local Supply Projects

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.

3

100,000 Acre Feet of Water Per Year

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.

4

Illegal Rates Create Breach of Contract

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.

Related News & Documents

News Releases

linkFeb. 27, 2020, news release from the Water Authority linkNov. 21, 2019, news release about the Water Authority’s settlement efforts linkState Supreme Court Denies Review of Rate Case, Confirms Important Victories – September 27, 2017 linkWater Authority Seeks Review of MWD Wheeling Rates by State Supreme Court – July 31, 2017 linkWater Authority Wins Key Rate Case Rulings at Court of Appeal – June 21, 2017 linkCourt to Hear Appeals in Water Authority Litigation Over Illegal MWD Rates – May 8, 2017 linkSan Diego Civic and Business Leaders Call on MWD to ‘Stop the Spending!’ – March 22, 2017 linkAdoption of Illegal MWD Rates Forces Fourth Water Authority Lawsuit – MWD Board ignores court order to set rates based on state law – April 13, 2016 linkFinal Judgment in Rate Case Secures Landmark Water Authority Victories – MWD owes Water Authority $235 million and rights to more MWD water supply – Nov. 19, 2015 linkCourt Awards $188.3 Million Plus Interest to Water Authority in Rate Case Victory – July 15, 2015 linkTrial Challenging MWD Rates Concludes in Superior Court – April 29, 2015 linkWater Authority Sues Metropolitan Water District over Rates for 2015 and 2016 – May 30, 2014 linkFinal Ruling: Water Authority Wins Landmark Rate Litigation Against Metropolitan Water District – April 25, 2014 linkMWD Adopts Unnecessary Rate Increases for 2015 and 2016 While Over-Collecting $350 Million from Ratepayers – April 8, 2014 linkSan Diego County Water Authority Wins Landmark Ruling in Rate Challenge Against Metropolitan Water District of Southern California – February 25 2014 linkLandmark Trial Over MWD’s Rates Concludes in Superior Court – December 23, 2013 linkTrial Begins Tuesday in Water Authority’s Lawsuits Challenging MWD’s Rates – December 16, 2013 linkWater Authority Seeks Pre-Trial Decision Declaring MWD’s ‘Rate Structure Integrity’ Clause Illegal and Unenforceable – September 20, 2013 linkCourt Denies MWD Motion Seeking to Exempt its Rates from Proposition 26 – September 20, 2013 linkWater Authority’s Rate Lawsuits Against MWD Go to Trial Dec. 17 – July 24, 2013 linkJudge Limits MWD’s Discovery Demands in Litigation Challenging its Rates – May 14, 2013 linkJudge Rules Prop. 26 does not Apply to 2010 Lawsuit Challenging MWD’s Rates – March 30, 2013 linkWater Authority Gains Ground in High-Stakes Lawsuit Against Metropolitan – Jan. 15, 2013 linkTwo Water Authority Rate Cases Against Metropolitan Water District to be Coordinated – Nov. 9, 2012 linkJudge Rejects MWD Efforts to Avoid Discovery in Water Authority Rate Challenge – Aug. 3, 2012 linkCourt Clears the Way for Water Authority’s Lawsuit to Be Heard – July 2, 2012 linkWater Authority Files New Lawsuit Against Metropolitan Water District Challenging 2013 and 2014 Water Rates – June 8, 2012 linkAppellate Court Summarily Denies MWD Writ Petition to Prevent Discovery in Rate Case – April 19, 2012 linkSan Diego County Water Authority Calls on MWD to Cut Spending and Cap Rate Hikes at 3 Percent – March 26, 2012 link@MWDFACTS Twitter Feed Launched to Provide Immediate Access to Information about MWD’s Proposed Rate Increases and Decisions – March 22, 2012 linkAppellate Court to Review Key Pre-Trial Decision in Water Authority Rate Case vs. Metropolitan Water District – March 16, 2012 linkPublic Records Detailing Inner Workings of Metropolitan Water District “Secret Society” Now Available Online – March 15, 2012 linkMetropolitan Water District of Southern California to Vote on Rate Increases in April – March 13, 2012 linkPublic Records Reveal Shadow Government Controlling the Metropolitan Water District of Southern California – March 12, 2012 linkWater Authority Launches “MWD Facts: The Truth About the Metropolitan Water District of Southern California” – March 7, 2012 linkCourt Reaffirms Prior Order Granting Discovery in Water Authority’s Rate Case Against Metropolitan Water District of Southern California – Feb. 17, 2012 linkCourt Grants Discovery in Water Authority’s Rate Case Against MWD – Jan. 6, 2012 linkCourt Ruling Allows New Claims to Remain in Water Authority’s Case Against MWD – Jan. 4, 2012 linkWater Authority Expands its Lawsuit Against MWD- Oct. 27, 2011 linkMetropolitan Water District Cancels Funding for Local Water Supply Projects in Retaliation for Lawsuit Challenging its Rates – June 14, 2011 linkWater Authority Board Approves Filing a Lawsuit Against
 Metropolitan Water District Challenging Illegal Water Rates – June 10, 2010

Court Documents

Superior Court

Appellate Court

Supreme Court

Amicus Letters Supporting Petition