HomeMy WebLinkAbout2022-01-18; Municipal Water District; ; Authorization of Use of San Diego County Water Authority RefundMeeting Date: Jan. 18, 2022
To: President and Board Members
From: Scott Chadwick, Executive Manager
Staff Contact: Shoshana Aguilar, Senior Management Analyst
shoshana.aguilar@carlsbadca.gov, 760-814-0241
Vicki Quiram, General Manager
vicki.quiram@carlsbadca.gov, 760-438-2722
Subject: Authorization of Use of San Diego County Water Authority Refund
Districts: All
Recommended Action
Adopt a resolution authorizing use of a second refund from the San Diego County Water
Authority to offset the rates the Carlsbad Municipal Water District pays the San Diego County
Water Authority for water.
Executive Summary
On Nov. 5, 2021, the Carlsbad Municipal Water District received a refund of $1,362,941 from
the Water Authority. This amount is CMWD’s share of a second refund on legal damages and
interest awarded from the Metropolitan Water District of Southern California to the Water
Authority for rate charges that had been unlawfully assessed between 2011 and 2014.
Under California’s Proposition 218, “Revenues derived from the fee or charge shall not be used
for any purpose other than that for which the fee or charge was imposed.” (California
Constitution, Article 13D, Section 6, (b)(2)).1 Because of these limitations on how this refund
may be used, it is prudent to use the refunds to offset future rate increases, as the CMWD
Board of Directors did on May 11, 2021.
That resolution authorized the use of the first refund of $1,692,237 to offset the rates CMWD
pays the Water Authority for water supply. (That amount was considered in calculating the
recent rate increases approved by the CMWD Board on Jan. 11, 2021.)
Staff recommend the CMWD Board adopt a resolution to authorize using the second refund to
offset the rates that CMWD pays the Water Authority for water supply. This will offset future
customer rate increases.
1 Proposition 218, a constitutional initiative approved by voters in 1996, placed restrictions on how local
government agencies are financed.
Jan. 18, 2022 Item #1 Page 1 of 5
Discussion
The Carlsbad Municipal Water District is one of the Water Authority’s 24-member agencies. In
its effort to ensure water reliability, the authority has continued to diversify the region’s water
supply portfolio, reducing its reliance on the Metropolitan Water District to 11% of its water
supply. The authority filed lawsuits between 2010 and 2018 challenging how the MWD’s water
rates and charges were imposed on Water Authority member agencies and their ratepayers.
In January 2021, the Superior Court in San Francisco County, entered a final judgment awarding
the Water Authority $44,373,872 in damages and interest in the first two of those lawsuits.
The $44.4 million in damages were for rate charges that had been unlawfully assessed to the
Water Authority between 2011 and 2014. Specifically, the MWD overcharged on its water
stewardship rates, which the Water Authority paid to transport its water through MWD’s
facilities. This final judgment was the result of a 10-year effort by the Authority’s Board of
Directors on behalf of San Diego County ratepayers and is expected to discourage future
overcharges and, by doing so, minimize future disputes.
On Feb. 25, 2021, the Water Authority Board voted to refund each of the member agencies its
proportionate share of the $44.4 million received from the MWD for damages and interest
based on the amount of municipal and industrial water each agency purchased from 2011 to
2014, when overcharges occurred.
On March 4, 2021, CMWD received a payment of $1,692,237. To put this amount in context,
CMWD’s total operating revenue for fiscal year 2020-21 potable water was approximately $41
million, so the refund was 4% of total operating revenue for that year. The CMWD Board
approved staff’s recommended use of the refund on May 11, 2021, when it adopted Resolution
No. 1653. Staff will apply these funds over a five-year period to offset future rate increases
during that time.
The Water Authority received an additional payment of approximately $36 million in October
2021 (Exhibit 3). Similar to the first judgment of $44.4 million, the $36 million judgment
represents an award of contract damages for rate charges that were unlawfully assessed
between 2011 and 2014.
Member agencies, including CMWD, have worked with their attorneys to analyze options for
the use of their share of the refunded money. While Proposition 218 limits how the refunds can
be used, options include offsetting future rate increases, dedicating the funds to the water
Capital Improvement Program or refunding customers directly.
A direct refund to customers would present a heavy and perhaps infeasible administrative
burden for CMWD staff for at least two reasons. First, billing records are not available for the
full span of the 2011-2014 refund period. Second, many customers have moved and changed
addresses since that time. Accordingly, staff recommend that the refund be used for offsetting
the rates CMWD pays the Water Authority for water supply, as was done with the earlier
refund. This will result in offsetting future customer rate increases. Other options for use of
CMWD’s refund are included in this staff report.
Jan. 18, 2022 Item #1 Page 2 of 5
Options
Staff provide the following options for the CMWD Board consideration:
1. Approve use of the Water Authority second refund to offset the rates CMWD pays for
water supply, which will result in offsetting future customer rate increases
Pros
• Funds will be applied to offset future rate increases
• Consistent with the board’s past action in Resolution No. 1653
• Minimal administrative burden and cost
• Ratepayers would receive more rate reduction benefit
Cons
• Ratepayers from 2011 to 2014 will not be directly reimbursed
2. Approve use of the Water Authority second refund solely for water capital improvement
projects
Pros
• Provides additional funding for the water capital improvement projects, which
may indirectly offset future rate increases
Cons
• Indirect benefit will offset ratepayer bills less than option 1
• Ratepayers from 2011 to 2014 will not be reimbursed directly
• Additional review would be needed to identify appropriate capital improvement
projects most suitable to receive the refund
Staff recommend Option 1 for the CMWD Board’s approval: Approve use of the Water
Authority’s second refund to offset the rates CMWD pays for water supply, which will result in
offsetting future customer rate increases.
Fiscal Analysis
The refund payment arrived in November 2021 and was recorded as revenue. It will be retained
in the water fund balance.
Next Steps
If approved by the CMWD Board, staff will take the appropriate actions to apply the refund to
offset the rates that CMWD pays the Water Authority, and the new balances will be considered
in setting future rates during the next cost of service study.
Environmental Evaluation
This action does not constitute a “project” within the meaning of the California Environmental
Quality Act under Public Resources Code Section 21065 in that it has no potential to cause
either a direct physical change in the environment or a reasonably foreseeable indirect physical
change in the environment.
Public Notification
This item was noticed in keeping with the Ralph M. Brown Act and it was available for public
viewing and review at least 72 hours before the scheduled meeting date.
Exhibits
1. CMWD Board resolution
Jan. 18, 2022 Item #1 Page 3 of 5
RESOLUTION NO. 1668
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CARLSBAD
MUNICIPAL WATER DISTRICT, AUTHORIZING USE OF A SECOND REFUND
FROM THE SAN DIEGO COUNTY WATER AUTHORITY TO OFFSET THE RATES
THE CARLSBAD MUNICIPAL WATER DISTRICT PAYS THE SAN DIEGO COUNTY
WATER AUTHORITY FOR WATER
EXHIBIT 1.
WHEREAS, on Feb. 25, 2021, the San Diego County Water Authority, or SDCWA, Board approved
the first refund to member agencies, including the Carlsbad Municipal Water District, or CMWD, in
proportionate shares for legal damages and interest awarded from the Metropolitan Water District of
Southern California to the SDCWA for rate charges that had been unlawfully assessed between 2011
and 2014; and
WHEREAS, on May 11, 2021, the CMWD Board of Directors of the City of Carlsbad, California,
adopted Resolution No. 1653, authorizing the use of the first SDCWA refund of $1,692,237 to offset
the rates that the CMWD pays the SDCWA for water supply, which was considered in developing the
recent cost of service study update; and
WHEREAS, on Nov. 5, 2021, the SDCWA refunded the CMWD an amount of $1,362,941 for the
CMWD's share of the second refund; and
WHEREAS, the CMWD Board has determined it necessary and in the public interest to approve
the use of the SDCWA second refund to offset the rates the CMWD pays the SDCWA for water supply,
which will result in offsetting future customer rate increases.
NOW, THEREFORE, BE IT RESOLVED by the Carlsbad Municipal Water District Board of Directors
of the City of Carlsbad, California, as follows:
1. That the above recitations are true and correct.
2. That the SDCWA's second refund in the amount of $1,362,941 shall be used to offset
the rates the CMWD pays the SDCWA for water supply, which will result in offsetting
future customer rate increases.
Jan. 18, 2022 Item #1 Page 4 of 5
Shoshana Aguilar, Senior Management Analyst
Vicki Quiram, General Manager
January 18, 2022
Authorization of Use of
San Diego County Water
Authority Refund
(..Carlsbad
Mu nici pal Water Distri ct
PROPOSED ACTION
Adopt a resolution authorizing use of the
second San Diego County Water Authority
refund to offset the rates the Carlsbad
Municipal Water District pays for water supply,
which will result in offsetting future customer
rate increases.
ITEM 1: WATER AUTHORITY REFUND
(..Carlsbad
Mu nici pal Water Distri ct
BACKGROUND
•On Nov. 5, 2021, the CMWD received a refund of $1,362,941 from the Water Authority.
•This amount is the CMWD’s share of a second refund on legal damages and interest awarded from the Metropolitan Water District of Southern California, or MWD, to the Water Authority for rate charges that had been unlawfully assessed between 2011 and 2014.
ITEM 1: WATER AUTHORITY REFUND
(..Carlsbad
Mu nici pal Water Distri ct
BACKGROUND
•On May 11, 2021, the CMWD
Board voted to dedicate the
first refund of $1,692,237 to
offset the rates that the
CMWD pays for water supply.
ITEM 1: WATER AUTHORITY REFUND
(..Carlsbad
Mu nici pal Water Distri ct
TIMELINE
2010
2010-2018
Water Authority
files lawsuits
against MWD
Jan. 2021
Court awards Water
Authority $44
million
March 2021
CMWD receives
refund of $1.7 million,
4% of annual revenue
Feb. 2021
Water Authority
Board votes to
distribute award to
member agencies
Oct. 2021
Water Authority
receives 2nd award
of $36 million
May 2021
CMWD Board
dedicates refund to
offset water rates
Jan. 2022
CMWD Board to
determine use of
2nd refund
Nov. 2021
CMWD receives 2nd
refund of $1.4 million
ITEM 1: WATER AUTHORITY REFUND
YOU ARE
HERE
DISCUSSION
•Proposition 218 limits how the refund can be used. Options include offsetting
future rate increases, dedicating the funds to the water Capital Improvement
Program, or refunding customers directly.
•A direct refund to customers would present a heavy and perhaps infeasible
administrative burden for the CMWD staff for at least two reasons. First,
billing records are not available for the full span of the 2011-2014 refund
period. Second, many customers have moved and changed addresses since
that time.
ITEM 1: WATER AUTHORITY REFUND
l._Carlsbad
Municipal Water District
RECOMMENDED ACTION
Adopt a resolution authorizing use of the
second San Diego County Water Authority
refund to offset the rates the Carlsbad
Municipal Water District pays for water supply,
which will result in offsetting future customer
rate increases.
ITEM 1: WATER AUTHORITY REFUND
(..Carlsbad
Mu nici pal Water Distri ct
NEXT STEPS
•If approved by the CMWD Board, staff will
take the appropriate actions to apply the
refund to offset the rates that CMWD
pays the SDCWA, and the new balances
will be considered in setting future rates
during the next cost of service study.
ITEM 1: WATER AUTHORITY REFUND
l._Carlsbad
Municipal Water District
THANK YOU
(.__carlsbad
Municipal Water District