Water Authority Wins Key Rate Case Rulings at Court of Appeal
June 21, 2017
“In today’s ruling, the Court of Appeal ruled in favor of the Water Authority, the San Diego region, and its ratepayers on several significant elements of our lawsuits to secure legal rates at the Los Angeles-based Metropolitan Water District of Southern California.
“One key ruling is that the Water Authority is entitled to tens of thousands of acre-feet more water from MWD than MWD had calculated under its preferential rights formula – a benefit valued in the hundreds of millions of dollars based on payments made by the Water Authority. Another is that MWD collected millions of dollars in illegal charges from San Diego ratepayers. MWD used this money to fund local supply and conservation projects for other MWD member agencies.
“In addition, the court found that MWD breached its contract with the Water Authority, which required MWD to set legal rates. The court also ruled that MWD’s “Rate Structure Integrity’ contract clause is unconstitutional and that the Water Authority has legal standing to challenge it. The RSI clause was designed to punish the Water Authority for its decision to challenge MWD’s rates in court.
“The court ruled against the Water Authority on one important issue with implications for ratepayers and taxpayers statewide – essentially, whether MWD must base its rates on the costs it actually incurs in providing its various services. We believe that the California Constitution, state law and voter-approved Proposition 26 compel MWD to do so – and the trial court agreed. MWD argued that it’s above the law, and convinced the Court of Appeal to reverse the lower court ruling on this key finding. We are also concerned about the chilling effect this ruling could have on water transfers and their benefits for the environment.
“With so much at stake, we expect that both the Water Authority and MWD are likely to seek review from the California Supreme Court of various aspects of today’s decision. The state Supreme Court has discretion to hear a further appeal of any issues decided by the Court of Appeal.
“When we filed the first rate case lawsuit in 2010, we knew that this would not be a sprint. It’s a marathon that we are running on behalf of – and with the strong support of – our region’s ratepayers, business leaders and elected officials. While today’s ruling secures several important victories for the Water Authority and its ratepayers, we are no less determined to see this case to a successful conclusion.”
— Mark Muir, Chair of the Water Authority’s Board of Directors
NOTE: Additional information about the rate case, including today’s ruling, is at www.sdcwa.org/mwdrate-challenge.
On May 10, 2017, the 1st District Court of Appeal heard oral argument in the appeals of the Water Authority’s victories in two lawsuits against MWD.
Superior Court Judge Curtis E.A. Karnow ruled in November 2015 that MWD’s rates for 2011-2014 were illegal. The judge directed MWD to pay the Water Authority more than $243 million in damages, costs, pre-judgment interest and attorneys’ fees – the largest plaintiff’s award in the state for 2015. If MWD were allowed to continue its unlawful rate-setting practices, which are not based on the cost of services MWD provides, overcharges to the Water Authority could exceed $7 billion over 45 years.
MWD appealed Judge Karnow’s final judgment and refused to change its rates. In addition, the Water Authority asked the 1st District Court of Appeal to review Judge Karnow’s ruling that the agency doesn’t have standing to challenge MWD’s “Rate Structure Integrity” contract clause (also known as “RSI”), which is designed to punish MWD member agencies that contest MWD rates in courts or the state Legislature. The Water Authority believes the RSI clause is an unconstitutional constraint on the Water Authority’s right to petition the courts and exercise free speech, and an unlawful attempt to immunize MWD against illegal, predatory water rates.
The Water Authority filed its initial rate lawsuit against MWD in 2010, then filed a second suit in 2012 because MWD refused to reform its rates, which are not based on the cost of the actual services MWD provides, as required under California law and the state Constitution. A third Water Authority lawsuit was necessary to challenge the MWD rates set for 2015 and 2016, and a fourth to challenge the MWD rates set in 2016 for 2017 and 2018. The third and fourth cases are currently stayed pending resolution of appeals in the first two lawsuits.
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 24 retail water providers, including cities, special districts and a military base.
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