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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