Loading...
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