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.Feb. 25, 2021, news release MWD rate case rebates Jan. 13, 2021, news release on Judge Massullo’s order Jan. 13, 2021, Order by Superior Court Judge Anne-Christine Massullo Aug. 13, 2020, judgment in the 2010-2012 cases Feb. 27, 2020, letter from the Water Authority to MWD Feb. 27, 2020, news release from the Water Authority Jan. 23, 2020, comparison of MWD and Water Authority offers Dec. 19, 2019, settlement offer letter from the Water Authority Nov. 21, 2019, news release about the Water Authority’s settlement efforts MWD’s 998 Offer from November 2019 Oct. 25, 2018, letter from Chair Madaffer to the MWD Board
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:
$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.
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.
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.
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.