San Diego Cnty. Water Auth. v. Metro. Water Dist. of S. Cal.
12 Cal. App. 5th 1124
| Cal. Ct. App. 5th | 2017Background
- Metropolitan Water District (Metropolitan) supplies imported water and operates an integrated conveyance system combining its own aqueducts and State Water Project (SWP) facilities; it adopted an unbundled, component-based rate structure (supply, system access, system power, water stewardship).
- San Diego County Water Authority (Water Authority), a Metropolitan member, entered a 2003 amended exchange agreement that tied the Water Authority’s price to "charges set by Metropolitan ... generally applicable to the conveyance of water." The Water Authority reserved limited rights to challenge rates after five years.
- Dispute: Metropolitan applied system access (including Metropolitan’s payments to the State for SWP transportation) and a volumetric water stewardship charge to wheeling/exchange transactions with the Water Authority; Water Authority sued, seeking invalidation of rates and damages for overcharges (2011–2014), and challenged a contract clause (RSI) conditioning conservation program payments on not litigating or supporting rate challenges.
- Trial court invalidated inclusion of SWP transportation charges and the water stewardship rate in wheeling/exchange charges, awarded ~ $235M plus fees to Water Authority, and held RSI clause enforceable on standing grounds; Metropolitan appealed and Water Authority cross-appealed on RSI standing and fees.
- Court of Appeal: upheld that Metropolitan may include system-wide transportation costs (including its allocable SWP transportation payments) in wheeling rates; reversed trial court’s exclusion of those SWP transportation costs; affirmed that inclusion of the water stewardship charge in wheeling rates is unlawful; held RSI clause is an unconstitutional condition and Water Authority has standing; remanded for recalculation of damages and prevailing-party fee determination.
Issues
| Issue | Plaintiff's Argument (Water Authority) | Defendant's Argument (Metropolitan) | Held |
|---|---|---|---|
| May system-wide transportation costs (including Metropolitan’s SWP transportation payments) be included in wheeling/exchange conveyance rates? | SWP transportation charges are supply-related and Metropolitan does not own SWP facilities, so those costs cannot be included in wheeling charges. | System-wide transportation costs, including Metropolitan’s allocable SWP transportation payments, are part of the conveyance system cost and may be recovered in a postage-stamp wheeling rate. | Metropolitan may include system-wide transportation costs (including its SWP transportation payments) in wheeling/exchange transportation rates; trial court erred to exclude them. |
| May Metropolitan include a water stewardship (conservation-funding) component in wheeling/exchange conveyance rates? | Stewardship charges fund supply-related conservation and thus are not costs "incurred by the owner for use of the conveyance system;" they should not be charged to wheelers. | Stewardship programs create transportation-related benefits (unused capacity, deferred expansion) so allocation to conveyance is reasonable. | Stewardship charge is not a conveyance cost recoverable from wheelers; inclusion was unlawful and overcharges attributable to it must be refunded. |
| Do Metropolitan’s rates violate Proposition 26 or Gov. Code § 54999.7 by effectively imposing a tax or exceeding reasonable cost? | The structure and some allocations make rates impinge on Proposition 26 principles (similar to Newhall). | Rates are service charges for a conveyance service, directly tied to reasonable costs; not taxes. | System access and power components (as applied) are service charges tied to reasonable costs and do not violate Proposition 26 or Gov. Code § 54999.7. |
| Is the Rate Structure Integrity (RSI) clause (threatening termination of conservation payments for litigating or supporting rate challenges) enforceable; and does Water Authority have standing to challenge it? | RSI is an unconstitutional condition that penalizes exercise of the right to petition; Water Authority has standing to assert constitutional right to petition. | RSI is a lawful condition to protect rate stability and program funding; Water Authority waived rights by contract and lacks standing as a public agency to assert petition rights. | RSI clause imposes an unconstitutional condition and is invalid; Water Authority has standing to challenge it. |
Key Cases Cited
- Metropolitan Water Dist. v. Imperial Irrigation Dist., 80 Cal. App. 4th 1403 (Cal. Ct. App. 2000) (wheeling statutes allow recovery of reasonable system-wide transportation costs)
- Barratt American, Inc. v. City of Rancho Cucamonga, 37 Cal.4th 685 (Cal. 2005) (reenactments of rates are open to challenge; statute of limitations does not bar timely challenges to later rate cycles)
- County of Inyo v. Public Utilities Com., 26 Cal.3d 154 (Cal. 1980) (common-law requirement that rates be based on cost of service or reasonable basis)
- Newhall County Water Dist. v. Castaic Lake Water Agency, 243 Cal. App. 4th 1430 (Cal. Ct. App. 2016) (Proposition 26 analysis distinguishing charges for services provided by the agency vs. charges tied to things the agency does not supply)
- Parrish v. Civil Service Comm'n, 66 Cal.2d 260 (Cal. 1967) (doctrine of unconstitutional conditions; heavy burden on government to justify conditioning benefits on waiver of constitutional rights)
- Dolan v. City of Tigard, 512 U.S. 374 (U.S. 1994) (exaction/condition doctrine requiring nexus and rough proportionality)
- Star-Kist Foods, Inc. v. County of Los Angeles, 42 Cal.3d 1 (Cal. 1986) (limits on when subordinate public entities may invoke certain federal constitutional rights against the state)
- Metropolitan Water Dist. of So. Cal. v. Marquardt, 59 Cal.2d 159 (Cal. 1963) (characterization of SWP contract as furnishing continued service, but does not preclude treating SWP facilities as part of Metropolitan’s conveyance system)