The San Diego County Water Authority has petitioned the State Supreme Court to consider and reverse a recent ruling by the First District Court of Appeal on a matter stemming from the Water Authority’s ongoing water wheeling rate case against the Metropolitan Water District of Southern California. A pending decision by the State’s highest court on whether to hear the matter or not could have far-reaching implications across California that would not only impact how agencies can charge customers for the movement of water but also potentially impact the future of the Water Transfer Agreement between the Water Authority and the Imperial Irrigation District.
In 2010 and 2012, the Water Authority filed lawsuits against MWD arguing that MWD charged illegal rates for the conveyance of water through the Colorado River Aqueduct. After several weeks of testimony during a bifurcated trial on the merits, San Francisco Superior Court Judge Curtis E.A. Karnow ruled in favor of the Water Authority on almost all its claims, including a ruling that MWD had overcharged the Water Authority for use of its Colorado River Aqueduct by almost $200 million during the four years at issue in the cases before the Court. The Water Authority and MWD both appealed parts of the Superior Court’s decisions.
The 1st District Court of Appeal ruled in favor of the Water Authority on nine out of 10 significant issues, including that MWD: breached its contract with the Water Authority, which required MWD to set legal rates; undercounted the Water Authority’s right to MWD water by nearly 100,000 acre-feet a year; and collected tens of millions of dollars in illegal “water stewardship” charges from San Diego ratepayers. But the Court of Appeal ruled against the Water Authority on one important issue that has broad implications for California ratepayers and taxpayers, finding that certain State “project water supply charges,” itemized by the Department of Water Resources as transportation-related for purposes of billing its own customers, and comprising about 75% of total State Water Project costs, could be treated by MWD as though they were its transportation costs and charged to its transportation-only customers. This single issue, involving the court’s analysis of State Water Project costs, is the basis of the Water Authority’s petition to the state Supreme Court.
At the heart of this issue is government rate setting.
But there are implications that relate back to the Water Transfer Agreement. When the agreement was signed between the Water Authority and IID, and became a cornerstone of the 2003 Quantification Settlement Agreement, the wheeling rates charged by MWD were a central concern, since MWD’s conveyance system would be used to move transfer water. An Exchange Agreement was reached between the Water Authority and MWD for a 35-year period, with a review of the agreement to come at the end of 2017 during which further decisions would have to be made on whether to extend that agreement for another ten years—to the full 45-year period of the water transfer. The board could, however, decide not to extend the Exchange Agreement, which would mean the Water Transfer Agreement would then have to be reduced to 35 years.
The Water Authority Board of Directors will face those decisions come the year’s end, and at the heart of that discussion will be a review of MWD rates and the impact on the overall cost associated with the water transfer. Ultimately, a State Supreme Court decision whether to hear the matter would certainly figure in to any decision on the Exchange Agreement with MWD with implications that—as noted—could impact the duration of the water transfer and by extension potentially the QSA.
This is a major issue worth paying attention to as the State Supreme Court weighs how to proceed. The Court has until Sept. 29 to decide whether to hear the matter, though it can grant itself an extension to reach a decision. If you have questions on this matter, contact the Imperial Valley Outreach Office at email@example.com or call 760.337.1386.