Water Authority vs. MWD Rate Litigation

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Presentation by Board Chair Michael T. Hogan and Assistant General Manager Dennis Cushman provided to the San Diego County Taxpayers Association on Nov. 18. Topics include an overview of the Water …

Presentation by Board Chair Michael T. Hogan and Assistant General Manager Dennis Cushman provided to the San Diego County Taxpayers Association on Nov. 18. Topics include an overview of the Water Authority's lawsuit against MWD regarding rates.

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  • 1. San Diego County Taxpayers Association Board of Directors Nov. 18, 2011 Michael T. Hogan, Chair, Board of Directors Dennis Cushman, Assistant General Manager
  • 2.  The amount of money the Water Authority sent to the Metropolitan Water District last year: $241,000,000 The amount of money at stake in the Water Authority’s rate lawsuit vs. MWD (over 45 years): $1,300,000,000 - $2,100,000,000 2
  • 3.  November 1946: Water Authority annexes into the Metropolitan Water District of Southern California By 1949 the Water Authority is buying half of 1949, all MWD water supplies ◦ MWD’s Colorado River Aqueduct had become MWD s operational in 1941, but MWD had low water sales  Until MWD began selling water, all MWD revenues came from from property taxes  Today, 80% of all MWD revenues come from water sales 3
  • 4.  By the 1990s, Water Authority remains MWD’s largest member 1991 agency, b i buying ~30% of MWD’ 30% f MWD’s Local Supplies: 26,000 AF water and providing ~30% of all of (5%) MWD’s revenues Supplies from MWD account for 95% of all water used in San Diego MWD Supplies: 552,000 AF County (95%) ◦ San Diego’s economy and quality of life for its residents were at significant risk d i i k during times of water shortage i f h ◦ Region had almost all of its “eggs” in one basket: MWD 4
  • 5. 55
  • 6. 1991 2011(estimated) 2020 26 TAF 72 TAF 28 TAF 103 TAF (5%) 80 TAF (12%) 80 TAF (5%) (13%) (13%) (10%) 44TAF 20 TAF (6%) 75 TAF (3%) 552 TAF (95%) (12%) 56 TAF 190 TAF (24%) (7%) 27 TAFTotal = 578 TAF 285 TAF 231 TAF (4%) (47%) 51 TAF (30%) (8%) 48 TAF (6%) Total = 611 TAF Total = 779 TAF Metropolitan Water District Recycled Water Imperial Irrigation District Transfer Seawater Desalination All American & Coachella Canal Lining Groundwater Conservation (existing and additional) Local Surface Water 6
  • 7. y yWater Authority buys more than 25%of MWD’s water and provides more than 25% of MWD’s revenues Average MWD Water Purchases by Member Agency (2000-09) 7
  • 8.  In October 2003, Colorado River QSA is executed: ◦ Water Authority signs 45- to 75-year deal to buy 200,000 200 000 AF annually from the Imperial Irrigation District ◦ Water Authority agrees to line the All American and Coachella canals and receive 80 000 AF annually f C h ll l d i 80,000 ll for 110 years ◦ Requires transportation rate from MWD to move supplies to San Diego through MWD’s system 8
  • 9.  MWD had to disaggregate its uniform water rate to develop a transportation charge for the Water Authority’s transfer supplies Facing a loss of water sales revenues due to the Water Authority’s supply diversification, MWD took vast majority of its water supply costs and misallocated them to its transportation charge to move the Water Authority’s IID and Canal Lining transfer f supplies 9
  • 10. < 2003 2003> MWD System Costs New Rate Structure Misallocates Water SupplyUniform Costs to Transportation Charge Water Water Rate Supply Costs Water System Power Water MWD Must Supply Access Rate Stewardship gg g Disaggregate Rate Rate Rate Its Costs Charged for Transportation Water Supply Costs MWD System Costs Charged for Purchase of MWD Water 10
  • 11. Water Supply Costs MWD System Costs Water System PowerSupply Access Rate Rate Rate Charged for Transportation Charged for Purchase of MWD Water 11
  • 12. Undercharge Overcharge -$0.6 City of Anaheim -$0.3 City of Beverly Hills -$0 2 $0.2 City of Burbank -$2.5 Calleguas MWD -$1.5 Central Basin MWD -$0.1 City of Compton -$2.1 Eastern MWD -$0 2 $0.2 Foothill MWD -$0.3 City of Fullerton -$0.4 City of Glendale -$1.6 Inland Empire Utilities Agency -$0.5 Las Virgenes MWD -$0.8 $0 8 City of Long Beach -$6.3 City of Los Angeles -$5.3 MWD of Orange County -$0.5 City of Pasadena San Diego County Water Authority $31.0 $0 0 $0.0 City of San Fernando $0.0 City of San Marino -$0.4 City of Santa Ana -$0.3 City of Santa Monica -$1.4 Three Valleys MWD -$0 4 $0.4 City of Torrance -$0.5 Upper San Gabriel MWD -$2.9 West Basin MWD -$2.0 Western MWD 12
  • 13. Present Value $ in Millions $2,105  $1,637  $1 311 $1,311  $1,033 $330 $330 $330  $330 Low High Next 10 Years 35 Year Term 45 Year Term 13
  • 14.  Case assigned to San Francisco Superior Court Judge Kramer Case has been designated as “complex” ◦ Assigned to single judge for all purposes ◦ Complex cases generally get more attention and resources from the court Estimated t a cou t dec s o in mid-2012 st ated trial court decision d 0 Imperial Irrigation District and UCAN are litigants on Water Authority’s side W Water A h i successful at O Authority f l Oct. 27 2011 27, trial hearing to amend complaint ◦ Added five causes of action 14
  • 15.  Added five causes of action: ◦ (1) Breach of contract (Exchange Agreement) ◦ (2 & 3) Breach of the covenant of good faith and fair dealing and declaratory relief (RSI clause; cancellation of conservation and recycling agreements)t ) ◦ (4) Breach of fiduciary duty (MWD directors owe a duty of loyalty to the “full constituency of the Metropolitan service area”) ◦ (5) Preferential Rights (MWD failed to include payments for transportation from calculation of Water Authority’s Preferential Right to MWD water) http://www.sdcwa.org/mwdrate-challenge 15
  • 16.  Adopt resolution supporting Water Authority in the rate litigation i th t liti ti File amicus curiae brief at appropriate time during litigation Provide written and oral testimony at MWD 2013 rate-setting hearings (early 2012) Publish P bli h commentaries and l i d letters to the h editor supporting Water Authority position Feature in Taxpayers Association publications Feature prominently on Taxpayers’ web site and social media activities 16