San Diego Water Users Were Overcharged Billions of Dollars

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scalesA California Superior Court judge has found that San Diego County water customers have been systematically overcharged by the Metropolitan Water District (MWD). Back in 2010, the San Diego County Water Authority sought to challenge the water rates being charged by the MWD.   At that time, the Water Authority asked for my help in challenging these rates and, after reviewing the facts, I agreed to join the fight. The litigation dragged on….and on….and on.   Finally, after a five-day trial held Dec. 17-23, 2013, and untold numbers of motions, a San Francisco Superior Court Judge ruled that MWD’s rates artificially inflate the cost of its water transportation services by improperly including unrelated expenses.   Specifically, San Francisco Superior Court Judge Curtis Karnow ruled that: “San Diego has proven by a preponderance of the evidence that it was in fact damaged by paying conveyance rates that were higher than Met could have set pursuant to applicable law and regulation.”

Judge Karnow  rejected all of MWD’s defenses to the Water Authority’s legal challenges, including the contention that the Water Authority consented to being overcharged by the Los Angeles-based wholesaler. Instead, he said the Water Authority was entitled to damages it claimed – four years of overpayments at approximately $188 million, plus interest. If allowed to stand, MWD’s overcharges could have exceeded $2 billion over 45 years.  The judge tentatively found that the Water Authority has been purchasing transportation service from MWD to convey water supplies the Water Authority buys from the Imperial Irrigation District and from lining the All American and Coachella canals in the Imperial Valley. The court rejected MWD’s argument that the Water Authority’s transfer supplies were purchases of MWD water excluded from the calculation of preferential rights.

Judge Karnow’s tentative award is a clear signal that MWD has been living outside the law and will need to reform its rates going forward. Over decades, this ruling will save San Diego County ratepayers billions of dollars.   However,  San Diegans may not want to start finding ways of spending that money, as MWD has indicated that it will appeal the judge’s ruling.  It is likely that the appellate process will consume another 3 years.
However, it is looking likely that San Diego (and SDCAN’s) position will be vindicated.    This case was filed in 2010, but started back in the 1990s.   At that time, almost all of San Diego County’s water needs were met by a single supplier – the Los Angeles-based Metropolitan Water District of Southern California.  In 1991, after a multi-year drought severely limited water supplies, MWD cut water deliveries 30 percent to the San Diego region, severely impacted the local economy and quality of life. Delivery cuts of 50 percent were only averted by “Miracle March” rains. The Water Authority Board then set forth a course to develop a supply diversification strategy to ensure that the region was never again dependent on a single supplier for nearly all of its water.

The cornerstone of this diversification strategy is a set of historic agreements the Water Authority signed in 2003 to secure its own sources of water from the Colorado River. Under long-term agreements, ranging from 45 to 110 years, the Water Authority purchases water from the Imperial Irrigation District and receives other independent water supplies from relining the All-American and Coachella canals. In order to get this water to San Diego County, the Water Authority uses pipelines that are controlled by MWD.

The Water Authority is the only MWD member agency that uses the pipelines MWD controls to transport a large volume of third party water supplies each year.    MWD’s illegal rates cause significant financial harm to the San Diego region. The overcharges may grow to as much as $217 million annually as the Water Authority’s independent Colorado River supplies reach their peak in 2021. Collectively, these overcharges amount to $2.1 billion over the life of the agreements.  For more information about the tumultuous relationship between the MWD and San Diego County,  read the Voice of San Diego story summarizing this case and its history.

 

 

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