San Diego County Water etc. v. Metropolitan Water Dist. etc.
A146901M
Cal. Ct. App.Jul 18, 2017Background
- Metropolitan Water District (Metropolitan) supplies Southern California via its own aqueducts and water from the State Water Project (SWP); San Diego County Water Authority (Water Authority) is a Metropolitan member and entered a 2003 amended exchange agreement to receive Imperial/third-party water in exchange for Metropolitan-supplied water, with price tied to Metropolitan’s conveyance charges.
- Metropolitan adopted an unbundled, postage-stamp rate structure (supply, system access, system power, water stewardship) and applied system access and stewardship components to wheeling/exchange transactions.
- Water Authority sued (2010, 2012) challenging 2011–2014 rates as unlawful and sought damages for breach of the exchange agreement for being charged those rates; trial court invalidated inclusion of SWP transportation costs and the water stewardship charge in wheeling/exchange rates and awarded large damages and fees.
- Metropolitan appealed, arguing (inter alia) challenge was time-barred and that system-wide transportation and stewardship costs may be included; Water Authority cross-appealed the enforceability of a Rate Structure Integrity (RSI) clause that conditioned conservation funding on refraining from litigation/legislative challenges.
- The Court of Appeal reversed parts of the trial court: upheld inclusion of Metropolitan’s system-wide transportation (including SWP transportation payments) in wheeling rates, but affirmed that the water stewardship component cannot be recovered via wheeling; held RSI clause unconstitutional as a condition on petitioning and that Water Authority has standing; remanded for recalculation of damages limited to stewardship overcharges and for further proceedings.
Issues
| Issue | Plaintiff's Argument (Water Authority) | Defendant's Argument (Metropolitan) | Held |
|---|---|---|---|
| May Metropolitan include system-wide SWP transportation costs in wheeling/exchange rates? | SWP transportation payments are supply-related and cannot be allocated to wheeling charges. | System-wide transportation costs, including SWP transportation charges paid by Metropolitan, are recoverable as part of fair compensation for conveyance. | Metropolitan may include its allocable SWP transportation costs in system access/wheeling rates; trial court erred excluding them. |
| May Metropolitan include the water stewardship (conservation) charge in wheeling/exchange rates? | Stewardship funds benefit system reliability and so are allocable to transportation. | Stewardship creates transport benefits (unused capacity, deferred expansion) and thus is recoverable. | Stewardship charge is supply-related and not a recoverable conveyance cost under the wheeling statutes/common law; inclusion was unlawful. |
| Is the RSI clause conditioning conservation program payments on refraining from litigation/legislative challenges valid? | Clause protects rate stability and program funding; payments are discretionary, not constitutional benefits. | Clause is necessary to prevent disruptive challenges and preserve funding; parties voluntarily agreed. | RSI clause imposes an unconstitutional condition on the Water Authority’s right to petition (judicial relief) and is invalid; Water Authority has standing to assert the claim. |
| Are the Water Authority’s rate challenges time-barred as collateral attacks on earlier bond/2002 rate structure? | Challenges attack current re-enactments of rates; timely after each rate adoption. | Rate structure was validated/pledged to bond issuance in 2002; limitations bar later suits. | Suits are not time-barred; reenactments/reenactments of rates are open to challenge when adopted. |
Key Cases Cited
- Imperial Irrigation Dist. v. Metropolitan Water Dist. of S. Cal., 80 Cal. App. 4th 1403 (Cal. Ct. App.) (system-wide transportation costs may be allocated to wheeling charges)
- Goodman v. County of Riverside, 140 Cal. App. 3d 900 (Cal. Ct. App.) (description of the State Water Project and contractor payment obligations)
- County of Inyo v. Public Utilities Com., 26 Cal. 3d 154 (Cal.) (common-law requirement that rates be based on cost of service)
- San Diego County Water Authority v. Metropolitan Water Dist., 117 Cal. App. 4th 13 (Cal. Ct. App.) (preferential rights / treatment of payments in calculating priority)
- Newhall County Water Dist. v. Castaic Lake Water Agency, 243 Cal. App. 4th 1430 (Cal. Ct. App.) (Proposition 26 analysis distinguishing charges for services the agency does not supply)
- Central San Joaquin Water Conservation Dist. v. Stockton East Water Dist., 7 Cal. App. 5th 1041 (Cal. Ct. App.) (contemporaneous confirmation that conveyance owners may recover reasonable system-wide costs)