Water Authority Seeks Pre-Trial Decision Declaring MWD’s ‘Rate Structure Integrity’ Clause Illegal and Unenforceable

September 20, 2013

The San Diego County Water Authority on Friday asked a San Francisco Superior Court judge to declare illegal and unenforceable…

The San Diego County Water Authority on Friday asked a San Francisco Superior Court judge to declare illegal and unenforceable contract language used by the Los Angeles-based Metropolitan Water District of Southern California to punish the Water Authority for challenging the legality of MWD’s water rates. In its motion for summary judgment, the Water Authority is asking Superior Court Judge Curtis E.A. Karnow to rule on the matter before the rest of its case challenging MWD’s 2011-2014 water rates goes to trial December 17.

A hearing has been scheduled for December 3 to hear the Water Authority’s motion and any motions for summary judgment MWD may file.  Today is the deadline for any party to the litigation to file motions for summary judgment.

MWD developed its so-called “Rate Structure Integrity” contract clause, or “RSI,” so that it could terminate and bar future participation in MWD subsidy programs that fund local water supply development and conservation programs in retaliation against any MWD member agency that exercises its First Amendment right to challenge MWD’s rates in court or lobbies the legislature to change them.  In its motion, the Water Authority is asking the court to declare the provision illegal and issue an order prohibiting MWD from enforcing the illegal contract provision.

“The RSI clause is an unconstitutional constraint on the Water Authority’s right to petition the courts and exercise its free speech, and an unlawful attempt to immunize MWD against its illegal, predatory water rates,” said Daniel Purcell, special counsel for the Water Authority with the law firm of Keker & Van Nest in San Francisco. “This is a public agency trying to quash dissent and debate on a matter of obvious public concern”îwhether its water rates are reasonable and legal.  This sort of heavy-handed intimidation is par for the course for MWD, but it’s clearly illegal and unconstitutional.”

MWD developed the RSI language explicitly to quash dissent by the Water Authority, and has added it to contracts since 2004 despite objections by several of its member agencies, including the Water Authority. The clause purports to give MWD unfettered authority to terminate subsidy funding for any member agency that challenges its rates in the state legislature or the courts – while at the same time requiring the member agency to pay the taxes that are used to pay for the subsidies. Even if MWD loses the underlying rate litigation, the RSI clause would remain in effect, according to MWD.

After the Water Authority filed a lawsuit in 2010 challenging MWD’s water rates, MWD invoked the RSI clause in June 2011 to punish the Water Authority.  Since that time, MWD has charged San Diego County water ratepayers approximately $35 million to help fund local water supply and conservation projects and programs in other parts of Southern California, while barring the Water Authority from receiving any of those funds for projects and programs in San Diego County. Instead, MWD redistributes the money paid by San Diego County ratepayers to pay for projects in Los Angeles, Orange, Ventura, San Bernardino and Riverside counties. Since barring the Water Authority from participating in these programs more than two years ago, MWD’s board has approved 13 new local supply projects in other parts of its service area.

MWD has also used the RSI clause as the basis for canceling several Water Authority agreements, including a $1.3 million agreement to increase water recycling in Ramona, a $1.1 million agreement to increase water use efficiency through landscape retrofits and training for homeowners and about $800,000 annually for other local programs to increase water use efficiency. The MWD board also directed its staff to bar the Water Authority from participating in any future MWD programs to help fund local supply development projects in San Diego County.

“The RSI clause was intended to be a ‘poison pill’ for San Diego,” said Dennis Cushman, assistant general manager at the Water Authority. “MWD used its economic leverage and monopoly power over Southern California’s water distribution facilities to try to force us to surrender our constitutional rights to challenge MWD’s illegal water rates in court or before the legislature.”

The Water Authority’s motion asks only for a declaration that the RSI clause is illegal and unenforceable; the issue of damages to the Water Authority will be decided later, at trial.

This litigation involves two lawsuits filed by the Water Authority challenging MWD’s rates – one in 2010 and one in 2012. A coordinated trial is set to start December 17 in San Francisco Superior Court.

The lawsuits assert that MWD misallocates water supply costs – including its costs of obtaining water from the State of California and its costs of funding local supply development projects – to MWD’s water transportation rates in violation of state law, the state constitution and common law. The lawsuits also allege, among other things, that MWD’s rates discriminate against the Water Authority by artificially inflating the price MWD charges for transporting the Water Authority’s independent Colorado River water supplies through MWD’s pipelines.

Under MWD’s current rates, water ratepayers in San Diego County will be overcharged this year by $57 million. By 2021, the overcharges could grow to more than $217 million annually.

  • 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.

    Media Contact Information

    Grace Sevilla

    Phone: (619) 855-5135

    Email: GSevilla@sdcwa.org