San Diego Owed $188M Over Alleged Water Row Overcharges

Law360 07/17/2015

A California state judge on Wednesday tentatively decided that the Metropolitan Water District of Southern California owes $188.3 million and interest to the San Diego County Water Authority for water rates it allegedly charged illegally from 2011 to 2014.

Judge Curtis E.A. Karnow found enough evidence that San Diego was damaged by paying conveyance rates that were higher than MWD could have set, and that MWD thus breached its obligations. The Water Authority said in a statement on Wednesday that the ruling will save San Diego County ratepayers billions of dollars in the coming decades.

San Diego accused the giant Los Angeles-based wholesaler of overcharging for bringing water from the Colorado River to the coast via a 242-mile aqueduct. The county claimed that MWD had a monopoly on imported water distribution facilities in Southern California.

In April of last year, Judge Karnow decided that MWD’s rates broke state laws blocking water companies from overcharging with their rates. On Thursday, the judge tentatively rejected MWD’s defenses to the Water Authority’s legal challenges, including its argument that the Water Authority agreed to be overcharged by MWD.

“This decision is a major victory for the San Diego region — not just the Water Authority, but our many partners who have supported this rate case from the start,” Mark Weston, chair of the Water Authority’s board of directors, said in a statement on Thursday. “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.”

A final ruling by Judge Karnow is expected in about a month, according to Wednesday’s statement.

The dispute arose from agreements that the Water Authority allegedly signed in 2003 to secure independent sources of water from the Colorado River and reduce the San Diego region’s reliance on MWD for water, according to court papers. To send its Colorado River water supplies to San Diego County, the Water Authority allegedly has to use pipelines controlled by MWD.

The Water Authority filed its first rate lawsuit against MWD in 2010, then sued again in 2012 because MWD refused to reform its rates, according to court papers.

On Wednesday, Judge Karnow tentatively decided that the Water Authority had been buying transportation service from MWD to convey water supplies it buys from the Imperial Irrigation District and from lining the All-American and Coachella Canals in the Imperial Valley.

The judge tentatively ruled that MWD has been undercalculating the Water Authority’s preferential right to MWD water supplies. In MWD’s water rights formula, it has improperly excluded hundreds of millions of dollars of payments by the Water Authority for transporting the Water Authority’s independent Colorado River water supplies, according to the tentative decision.

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, according to Wednesday’s statement.

MWD spokeswoman Sherita K. Coffelt told Law360 on Thursday that they disagree with Judge Karnow’s decision.

“Metropolitan will file objections to the tentative statement and, at the conclusion of the litigation in the trial court, will appeal the adverse rulings,” Coffelt said.

The Water Authority has said that an appeal will delay refunding of the its alleged overpayments.

“We obviously don’t agree with MWD’s strategy to waste more money defending a flawed and illegal rate scheme,” Weston said in Wednesday’s statement. “The ratepayers of San Diego County deserve not only legal rates but also their legal entitlement to MWD’s water supplies.”

The Water Authority has said that it will deduct its litigation expenses and return the remaining money to its 24 member agencies in proportion to their payment of MWD’s allegedly illegal overcharges over the four years in dispute.

The Water Authority is represented by Keker & Van Nest LLP.

Consel information for WMD was not immediately available on Thursday.

The cases are San Diego County Water Authority v. Metropolitan Water District of Southern California et al., case numbers 10-510830 and 12-512466, in the Superior Court of California for the County of San Francisco.

John W. Keker

John W. Keker

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Daniel Purcell

Daniel Purcell

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