Council hears report on ongoing water litigation case

CARLSBAD — A war between the San Diego County Water Authority and the Metropolitan Water District of Southern California has put ratepayers in the crossfire.

Keith Lewinger, who represents the Carlsbad Municipal Water District on the SDCWA board and is also a representative of SDCWA and on the MWD board, reported Tuesday to the City Council about the ongoing litigation between the two districts.

The issue stems from illegal rate increases by MWD passed onto SDCWA’s customers, Lewinger added. Lewinger said state law is clear and public water agencies can charge no more than the cost of service for any service provided.

In addition, the law stipulates an entity can charge customers proportionately based on the burdens they place upon and the benefits they receive from the water agency.

“You have to do a cost of service analysis to determine that (the rate),” Lewinger said. “Well, Metropolitan didn’t. They were charging and over charging the water county authority for water we were transporting from the desert … through Metropolitan pipelines to the county water authority.”

A victory recently came for SDCWA in the form of a $277 million judgment stemming from cases in 2010 and 2012 and damages from 2011-14. A 2014 case concerning the 2015-16 rates has been stayed, while paperwork for a case against 2017-18 rates is expected to be filed soon, Lewinger said. He said the final ruling in the third case is not expected until summer or fall 2017.

If the court rules in favor of SDCWA in all three, the total payout would be an estimated $524 million. Should MWD decide to appeal and lose, Lewinger added, the total would climb to more than $600 million due to a 7.5 percent interest fee added to the judgments.

“Unfortunately, Metropolitan set their rates for that wheeling in a manner that didn’t conform with the law,” Lewinger added. “We’ve been in court for four or five years. They readily admitted over the last several months that they will not be changing they are calculating the rates, even though the judge said it was illegal.”

Should SDCWA lose any of the other two cases, he said it is guaranteed the district will appeal the ruling.

MWD’s proposed 2017-18 rates and charges are another target of scrutiny, while the process to determine those changes, Lewinger said, is less than rigorous.

Those changes include an average four percent increase for the 23 agencies. However, not all agencies receive the same services, Lewinger said.

Other increases projected to hit the SDCWA include six percent for transportation charges, 12 percent in the cost of raw water and an astounding 77 percent rise for treated water.

“That is still based on the illegal rates that the judge has said you are calculating them wrong,” Lewinger said of the rate increase.

Over the past 25 years, MWD’s has overbuilt treatment capacity and only fills about 50 percent, Lewinger said. Growth projections led to MWD’s growth, but adjustments were never made after regional growth plateaued and decreased, plus the influx of other water supplies such as recycled water.

“They were trying to come up with a system to increase the fixed revenue for treated water,” he added. “One of the models they were looking at said, we’re going to take that fixed cost based on the higher of the two numbers from 1998-2007, or your recent 10-year rolling average.”

Yet another blow for MWD came in 1997 when the SDCWA built the Twin Oaks treatment plant in Escondido. The county saw a sharp decline in treated water as a result, leading to MWD’s 77 percent increase.

The SDCWA voted down the rate increases and went back to MWD telling the rogue district to form an advisory committee and to institute a process to gradually increase rates.

“The rates they adopted are still illegal,” Lewinger said.

Yet another battle, one SDCWA lost, concerns MWD’s collection of “excess” property taxes. Lewinger said the MWD approved a tax increase saying it is not “what the legislature intended.” The increase covers the entire MWD service area and will total $111 million over a two-year period.

The rate, which is $0.01, is eventually supposed to become zero, Lewinger said.

“The Metropolitan board, each year, takes this action to say that it is important for the fiscal integrity for the district to maintain this tax revenue,” he added. “And every year we say, ‘No it’s not.’ You have other sources of revenue you can use. We are losing that battle.”

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