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Home My WebLink About2021-04-08; San Diego County Water Authority Refund to Member Agencies (Districts - All); Gomez, Paz1) To the members of the: CITY COUNCIL Date '4-/~ ,~I CA .:L_ CC __L CM ✓ ACM _j/__DCM(3}.:L_ April 8, 2021 CMWD Board Memorandum To: Carlsbad Municipal Water istri t Board of Directors From: Paz Gomez, Deputy City Man Vicki Quiram, General Mana""'e:;.;..r--'Wt- Via: Scott Chadwick, Executive ~ a Cearlsbad Municipal Water District - Memo ID #2021075 Re: San Diego County Water Authority Refund to Member Agencies (Districts -All) This memorandum provides information on the $1,692,236.88 refund from the San Diego County Water Authority (Water Authority) to the Carlsbad Municipal Water District (CMWD), which represents CMWD's share of contract damages awarded from the Metropolitan Water District of Southern California (MWD) to the Water Authority. Background CMWD is one of the Water Authority's 24 member agencies. In the Water Authority's effort to ensure water reliability, it has continued to diversify the region's water supply portfolio, reducing its reliance on MWD to 11% of its water supply. The Water Authority filed lawsuits between 2010 and 2018 challenging MWD's water rates and charges as they were imposed on the Water Authority member agencies and their ratepayers. Attachment A summarizes past and present litigation issues. Discussion On Jan. 13, 2021, the San Francisco Superior Court entered a final judgment entitling the Water Authority to $44,373,872 (hereafter referred to as "$44.4 million") in damages and interest in addition to recovery of attorney's fees and costs in the first two lawsuits that challenged the rates and charges set by the MWD. The $44.4 million judgment represents an award of contract damages for rate charges that had been unlawfully assessed to the Water Authority between 2011 and 2014. Specifically, the MWD overcharged its water stewardship rates, which account for the MWD's transport of the Water Authority's independent water through the MWD facilities. The attorney's fees and costs have not yet been determined. This final judgment caps a 10-year effort by the Water Authority Board of Directors on behalf of San Diego County ratepayers. While the damages and interest award are important, the judgment will also discourage future overcharges and thereby minimize future disputes. On Feb. 25, 2021, the Water Authority Board voted to refund each member agency its proportionate share of the $44.4 million received from the MWD for damages and interest. The news release is included as Attachment B. Carlsbad Municipal Water District 5950 El Camino Real I Carlsbad, CA 92008 I 760-438-2722 t Board Memo -SDCWA Refund to Member Agencies (Districts-All) April 8, 2021 Page 2 The Water Authority calculated each member agency's refund based on the amount of municipal and industrial water each agency purchased from 2011 to 2014, when the MWD overcharged the Water Authority. On March 4, 2021, the CMWD received a one-time payment of $1,692,236.88. To put this in context, the CMWD total projected revenue for fiscal year (FY) 2020 -21 potable water is approximately $40 million. Attachment C contains the MWD rate case total refund allocations of the $44.4 million. Member agencies, including CMWD, have worked with their attorneys to analyze options for the use of the refunded money as Proposition 218 limits how each agency can use these funds. A list of surveyed agencies, and their respective intended use of the refunded money is presented in Attachment C. Of 18 agencies surveyed, 13 intend to use the refund to offset future rate increases. Other options may include dedicating the funds to the water Capital Improvement Program {CIP) or refunding customers directly. A direct refund to customers would present a heavy and perhaps infeasible administrative burden for CMWD staff since billing records are not available and maintained from the full span of the refunded period, 2011-2014, and customers have changed due to moves since that time. While the office of CMWD's General Counsel provided CMWD staff with preliminary advice on the matter, no written opinion has been issued on the use of this refunded money. Accordingly, if the office of CMWD's General Counsel concurs, the Board staff report will include options for use of the $1,692,236.88 refund but will recommend that the refund be used for offsetting future rate increases. In their efforts to narrow other un-finalized lawsuits, the Water Authority's attorneys continue to work with the MWD to resolve the remaining legal issues. The Water Authority will distribute the attorney's fees and charges once the amounts are resolved. The Water Authority is working collaboratively with the MWD member agencies across the MWD's six-county service areas to update its long-term water resource and financial planning. The MWD's Integrated Resources Plan, known as the IRP, will be its roadmap for the future, factoring in updated data and plans by many MWD member agencies to develop local water supplies. Next Steps Within the next few months, staff from CMWD and the Finance Department will return to the CMWD Board with information on options for use of the $1,692,236.88 refund that CMWD received from the Water Authority. Attachments: A. Fact Sheet-Water Authority/MWD Litigation B. News Release dated Feb. 25, 2021 C. MWD Rate Case Rebates and distribution of $44,373,872 for Local Water Agencies Board Memo -SDCWA Refund to Member Agencies (Districts -All) April 8, 2021 Page 3 cc: Geoff Patnoe, Assistant Executive Manager Celia Brewer, General Counsel Laura Rocha, Deputy City Manager, Administrative Services Robby Contreras, Assistant General Counsel Ryan Green, Finance Director Kim Riboni, Senior Accountant Shoshana Aguilar, Senior Management Analyst Our Region's Trusted Water Leader San Diego County Water Authority FACT SHEET -ISSUES IN SDCWA/MWD LITIGATION1 What's been decided so far? ATTACHMENT A a. MWD breached Exchange Agreement by charging its WSR2 on transportation (2011-14) Damages + interest = $48 million ( appx. 3) Suspension of collection of WSR (2018-2020) $45 million b. MWD could include current SWP costs in its transportation rate (no damages awarded)4 c. MWD miscalculated preferential rights, about 100,000AF rights per year awarded to Water Authority5 d. MWD's RSl 6 clause illegal Damages (restitution) TBD (still pending; see below) What's still pending? a. MWD breached Exchange Agreement by charging its WSR on transportation (2015-17)7 Damages+ interest = $32 million b. Restitution for RSI years (2011-2017)8 Damages+ interest = c. Offsetting benefits of wheeled water supplies9 (2011-2020; $250/ AF low estimate) Damages+ interest = e. WSR on supply purchases (2018-2020)10 Damages+ interest = e. Attorney's fees/costs = $64 million $660 million $24 million $15 million 1 MWD's 998 offer proposes that the Water Authority agree to an amendment of the Exchange Agreement; however, no amendment is at issue in the litigation, and thus is not shown here. 2 Water Stewardship Rate . 3 All dollar numbers are approximate. 4 The Water Authority had already paid the disputed rates. 5 This is not a damages issue; MWD has corrected its calculation of preferential rights. As a comparable for valuation of the 100,000 AFY of water, the Carlsbad Desalination Project cost about $1 billion to produce up to 56,000 AFY. 6 Rate Structure Integrity. 7 This issue was decided against MWD in the 2011-2014 cases but MWD claims it now has a new administrative record and therefore wants to try the issue again. 8 Represents the difference between the Water Authority share of payments to fund WSR projects and benefits received with WSR payments to Exchange Agreement netted out for the period indicated; does not include Water Authority's claim for subsidies for Carlsbad, though such LRP funding could be an alternative value for the same period. Overall, prior to adjustment for damages and recent LRP contracts, the Water Authority to date has paid $170 million more to fund WSR programs than it has received in benefits. 9 The wheeling statute requires MWD to calculate offsetting benefits but MWD refuses to do so even though the Court of Appeal applied the wheeling statute to the Exchange Agreement. 10 The claim for WSR on supply charges for 2015-2017 is duplicative of the (b) restitution claim and so is not listed separately. ATTACHMENT B Our Region's Trusted Water Leader San Diego County Water Authority 4677 Overland Avenue, San Diego, CA 92123 News Release Ed Joyce (949) 276-1675 cell Ejoyce@sdcwa.org $44.4 M illion in MWD Overcharges Being Returned to Local Water Agencies Rate cases move closer to closure with damages payment by fv1WD February 25, 2021 -The San Diego County Water Authority's Board of Directors today announced a plan to distribute a rebate of $44.4 million to its 24 member agencies across the region after receiving a check for that amount from the Los Angeles-based Metropolitan Water District of Southern California to pay legal damages and interest. The money resulted from the Water Authority's decade-long rate case litigation in state Superior Court seeking to compel MWD to set legal rates and repay overcharges. The Water Authority won several critical issues in cases covering 2011-2014 and was deemed the prevailing party, which means the agency is also owed legal fees and charges in addition to the recent damages and interest payment fromMWD. "Th is day has been a long time coming. We never wanted to litigate these issues -but if we had not had the courage to do so, MWD would still be collecting the illegal fees and we would not have money to give back to local retail water agencies across the region." ■ Gary Croucher, Board Chair The court rulings will also help avoid San Diego County Water Authority future overcharges and thereby minimize future disputes over MWD's unlawful Water Stewardship Rate for transp01iing the Water Authority's independent water supplies through MWD facilities. Those charges -if they had continued -would have cost San Diego County residents more than $500 million over the life of the Water Authority's water delivery contract with MWD. "This day has been a long time coming," said Water Authority Board Chair Gary Croucher. "We never wanted to litigate these issues -but if we had not had the courage to do so, MWD would still be collecting the illegal fees and we would not have money to give back to local retail water agencies across the region." Per today's decision by the Water Authority's Board, the $44.4 million will be returned to member agencies in proportion to their overpayments between 2011-2014. The Water Authority does not have a say in how member agencies use the refunds. The amount of legal fees and costs owed to the Water Authority is yet to be determined. In addition to damages and interest, the rate case lawsuits generated other substantial benefits, such as requiring an increase in the Water Authority's preferential rights to MWD water by approximately 100,000 acre-feet a year, equivalent to about twice the annual production of the $1 billion Carlsbad Desalination Project. In February 2020, the Water Authority's Board of Directors voted to dismiss certain issues from the litigation after securing more than $350 million in local project subsidy benefits for the San Diego region. In doing so, the Water Authority acknowledged the MWD Board action to stop imposing its Water Stewardship Rate for transporting the Water Authority's independent supplies, thus resolving for now that issue in future rate years. As the lawsuits wind down, the Water Authority is working collaboratively with MWD member agencies across Southern California to update MWD's long-term water resource and financial plans. MWD's Integrated Resources Plan, known as the IRP, will be the agency's roadmap for the future. The Water Authority is advocating for inclusion of updated data and plans by many MWD member agencies to develop local water supplies such as the Water Authority and its member agencies have done over the past two decades and will continue to do in the future. ### The San Diego County Water Authority sustains a $245 billion regional economy and the quality of life for 3.3 million residents through a multi-decade water supply diversification plan, major infrastructure investments and forward-thinking policies that promote fiscal and environmental responsibility. A public agency created in 1944, the Water Authority delivers wholesale water supplies to 24 retail water providers, including cities, special districts and a military base . • q111tOJfJJl'~www.instagram.com/sdcwa www.twitter.com/sdcwa @sdcwa O www.facebook.com/SanDiegoCountyWaterAuthority You I : www.youtube.com/SDCWAvideo ATTACHMENT C I Agency Refund Amount Use of SDCWA Refund Payment 7 Carlsbad MWD $1,692,236.88 To be determined Del Mar, City of $108,025.65 Water Fund Contingency Escondido, City of $1,754,022.94 CIP Fallbrook PUD $909,412.67 Offsetting future rate increases/local supply development HelixWD $2,847,389.34 Offsetting future rate increases Lakeside WD $348,005.17 Capital Improvement Reserve Fund Oceanside, City of $2, 351,413.99 Offsetting future rate increases Olivenhain MWD $2,039,332.40 Offsetting future rate increases OtayWD $3,162,939.58 Offsetting future rate increases Padre Dam MWD $1,157,551.53 Offsetting future rate increases Pendleton Military Reserve $4,958.08 To be determined Poway, City of $1,167,915.01 Offsetting future rate increases Rainbow MWD $1,343,382.03 Offsetting future rate increases Ramona MWD $596,663.83 To be determined Rincon Del Diablo MWD $630,780.62 To be determined San Diego, City of $17,676,521.64 To be det ermined San Dieguito WD $368,002.42 Offsetting future rate increases Santa Fe ID $748,699.93 Offsetting future rate increases Sweetwater Authority $874,367.74 To be determined Vallecitos WD $1,590,623.74 Offsetting future rate increases Valley Center MWD 1,332,471.26 Offsetting future rate increases Vist a ID $1,571,006.35 Offsetting future rate increases Yuima MWD $98,149.47 Rate Stabilization