HomeMy WebLinkAbout2022-08-16; Municipal Water District; ; Authorization for Use of Additional San Diego County Water Authority RefundsCA Review _RMC_
Meeting Date:
To:
From:
Staff Contact:
Subject:
Districts:
Aug. 16, 2022
President and Board Members
Scott Chadwick, Executive Manager
Shoshana Aguilar, Senior Management Analyst
shoshana.aguilar@carlsbadca.gov, 760-814-0241
Vicki Quiram, Utilities Director
vicki.quiram@carlsbadca.gov, 760-438-2722
Authorization for Use of Additional San Diego County Water Authority
Refunds
All
Recommended Action
Adopt a resolution authorizing use of two additional refunds 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 supply, which will result in offsetting future customer rate increases.
Executive Summary
The Carlsbad Municipal Water District was notified in May 2022 that it would receive an
additional refund of $398,486.16 from the San Diego County Water Authority and then in July
2022 that it would receive another refund of $15,707.73. These amounts represent CMWD’s
share of refunds from attorney’s fees paid to the Water Authority by the Metropolitan Water
District of Southern California for rate charges that had been unlawfully assessed. These
refunds bring the total refund to CMWD resulting from the legal damages, interests and costs
the Water Authority was awarded to $3,469,371.89.
State law requires revenue derived from fees to be applied to the same purpose the fee was
imposed. (Proposition 218,1 California Constitution, Article 13D, Section 6, (b)(2)) Because of
that limitation, staff recommend using the third refund to offset future rate increases, as the
CMWD Board chose to do for the first two refund payments.
Since CMWD ordinances do not authorize the Executive Manager to determine how these
refunds should be used, staff recommend the CMWD Board adopt a resolution to authorize
using the refunds to offset the rates that the CMWD pays the Water Authority for water supply.
This will result in offsetting future customer rate increases.
1 Proposition 218, a constitutional initiative approved by voters in 1996, placed restrictions on how local
government agencies are financed.
Aug. 16, 2022 Item #3 Page 1 of 5
Discussion
CMWD purchases water from the county Water Authority as one of its 24-member agencies.
The Water Authority filed a series of lawsuits against the Metropolitan Water District
challenging how MWD’s water rates and charges were imposed on the Water Authority’s
member agencies and their ratepayers from 2011 to 2017.
A Superior Court judge in August 2020 awarded the Water Authority $44.4 million. The court
found MWD had overcharged on its water stewardship rates, which the Water Authority paid
to transport its independent water through MWD’s facilities.
The Water Authority was awarded $44,373,872 in damages and interest, in addition to
attorney’s fees and costs.
On Feb. 25, 2021, the Water Authority Board voted to refund to each of the member agencies
its proportionate share of the award for damages and interest based on the amount of water
each agency purchased from 2011 to 2014. The CMWD’s share of the first refund was
$1,692,237.
The CMWD Board voted to use the refund to offset future rate increases. (Resolution No. 1653,
adopted May 11, 2021.)
The Water Authority received an additional refund payment of approximately $36 million in
October 2021. CMWD received $1,362,941 as its share of this second refund in November
2021. The CMWD Board again approved staff’s recommendation and voted to apply the refund
to offset future rate increases. (Resolution No. 1668, adopted Jan. 18, 2022.)
In May 2022 and July 2022, the CMWD learned it would receive refunds for attorney’s fees of
$398,486.16 and $15,707.73, respectively. These refunds represent CMWD’s share of the
attorney’s fees the Water Authority received for litigating the lawsuits. The district received the
$389,486.16 refund on June 3, 2022, and the district expects to receive the $15,707.73 refund
in August or September 2022.
CMWD and the Water Authority’s member agencies have worked with their attorneys to
analyze options on how to use 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 water projects in the 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. Accordingly, staff recommend that the third refund be used
for offsetting the rates the CMWD pays the Water Authority for water supply, as was done with
the previous two refunds. This will result in offsetting future customer rate increases.
Options
Staff provide the following options for the CMWD Board’s consideration:
1. Adopt a resolution authorizing use of two additional refunds from the Water Authority
to offset the rates CMWD pays the authority for water supply, which will result in
offsetting future customer rate increases
Pros
Aug. 16, 2022 Item #3 Page 2 of 5
• Funds will be applied to offset future rate increases
• Consistent with the Board’s past actions in Resolution Nos. 1653 and 1668
• Minimal administrative burden and cost
• Ratepayers would receive additional rate reduction benefit
Cons
• Ratepayers from 2011 to 2017 will not be reimbursed directly
2. Approve use of the two additional refunds from the Water Authority solely for water
projects in the city’s Capital Improvement Program. (Additional review would be needed
to identify appropriate capital improvement projects most suitable to receive the
refund.)
Pros
• Provides additional funding for the capital improvement water projects, which
may indirectly offset future rate increases
Cons
• The indirect benefit will offset ratepayer bills less than Option 1
• Ratepayers from 2011 to 2017 will not be reimbursed directly
Staff recommend Option 1.
Fiscal Analysis
The third refund payment of $398,486.16 arrived on June 3, 2022, and it was recorded as
revenue. It will be retained in the water fund balance. The fourth refund of $15,707.73 is
expected to arrive in August or September 2022 and will be similarly recorded as revenue and
retained in the water fund balance.
Next Steps
If this measure is approved by the CMWD Board, staff will take the appropriate actions to apply
the third and fourth refunds to offset the rates that the CMWD pays the county Water
Authority, and the new balances will be considered in setting future rates.
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.
Exhibit
1. Carlsbad Municipal Water District Board resolution
Aug. 16, 2022 Item #3 Page 3 of 5
RESOLUTION NO. 1681
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CARLSBAD
MUNICIPAL WATER DISTRICT, AUTHORIZING USE OF TWO ADDITIONAL
REFUNDS 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 SUPPLY
WHEREAS, on Feb. 25, 2021, the San Diego County Water Authority 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 Water Authority for stewardship 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 use of the first San Diego County Water Authority, or Water
Authority, refund of $1,692,237 to offset the rates that the CMWD pays the Water Authority for water
supply; and
WHEREAS, on Jan. 18, 2022, the CMWD Board of Directors of the City of Carlsbad, California,
adopted Resolution No. 1668, authorizing use of the second Water Authority refund of $1,362,941 to
offset the rates that the CMWD pays the Water Authority for water supply; and
WHEREAS, on June 3, 2022, the Water Authority refunded the CMWD an amount of
$398,486.16 for the CMWD's share of the third refund which represents CMWD's share of attorney's
fees paid by MWD to the Water Authority for litigating the lawsuits; and
WHEREAS, in August or September 2022, the Water Authority is expected to refund the CMWD
an additional $15,707.73 as the fourth refund for the CMWD's share of attorney's fees paid by MWD
to the Water Authority for litigating the lawsuits; and
WHEREAS, the CMWD Board has determined it necessary and in the public interest to approve
use of the additional SDCWA refunds to offset the rates the CMWD pays the Water Authority 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 the City
of Carlsbad, California, as follows:
1.That the above recitations are true and correct.
Exhibit 1
Aug. 16, 2022 Item #3 Page 4 of 5
2.That the SDCWA's third refund in the amount of $398,486.16 shall be used to offset the
rates the CMWD pays the Water Authority for water supply, which will result in
offsetting future customer rate increases.
3.That the SDCWA's fourth refund in the amount of $15,707.73 shall be used to offset
the rates the CMWD pays the Water Authority for water supply, which will result in
offsetting future customer rate increases.
PASSED, APPROVED AND ADOPTED at a Special Meeting of the Carlsbad Municipal Water
District Board of the City of Carlsbad on the 16th day of August, 2022, by the following vote, to wit:
AYES:
NAYS:
ABSENT:
Hall, Blackburn, Bhat-Patel, Acosta, Norby.
None.
None.
f!PG -rvFAVIOLA MEDINA, City Clerk Services Manager
(SEAL)
Aug. 16, 2022 Item #3 Page 5 of 5