The Morning Report
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Over the past two decades, the fight between the Metropolitan Water District and the San Diego County Water Authority has eaten up the time and energy of countless water bureaucrats and cost water customers across Southern California tens of millions of dollars.
Now that fight has led to a rebellion in the Water Authority’s own backyard.
As a result, the Water Authority may no longer be able to count on a phalanx of its board members to publicly support the anti-Metropolitan rhetoric and policies that have been the cornerstone of the agency’s ethos for much of recent history.
Some San Diego water agencies are eager for money from Metropolitan’s large pool of subsidies available for local projects.
But curiously, even though they recently won access to those funds after years of litigation, Water Authority leaders now don’t want the money.
To understand the latest twist in the saga, it’s important to go back more than a decade.
In June 2004, Metropolitan CEO’s at the time, Ron Gastelum, predicted the San Diego County Water Authority might sue his agency. The Water Authority had recently orchestrated a deal to purchase water from farmers in the Imperial Valley. Even though it wasn’t a fan of the deal, Metropolitan would have to deliver that water to San Diego. But the two agencies couldn’t agree on the price.
Gastelum and everyone also knew that San Diego was also looking to build an ocean water desalination plant. Since desalination is expensive, the Water Authority would likely ask for subsidies from Metropolitan to help.
Could those two things be used against each other?
Gastelum thought so. He came up with a policy that said if anyone sued Metropolitan over its rates, they would lose access to Metropolitan’s subsidies.
The poison pill applied to any of Metropolitan’s customers, but it was clearly designed to discourage the Water Authority from taking Metropolitan to court.
In 2010, the Water Authority sued Metropolitan anyway. Gastelum’s prediction had come true.
But the Water Authority also claimed in court filings that Gastelum’s poison pill was unconstitutional: Just because the Water Authority was taking Metropolitan to court shouldn’t mean that Metropolitan could treat San Diegans differently than its other customers.
Metropolitan’s current general manager, Jeffrey Kightlinger, was then Metropolitan’s general counsel. He helped create the legal theory to support Gastelum’s vindictive policy.
“I thought it could be done and structured legally, I did not believe it was unconstitutional,” Kightlinger said in an interview.
He was wrong.
But it took seven years for the courts to say so.
In the meantime, San Diego customers have been paying millions of dollars in fees to Metropolitan for the specific purpose of subsidizing local water projects, even though there was no chance of seeing any of that money come back to San Diego. According to the Water Authority, it pays about $15 million to $20 million a year in such fees.
Doug Wilson, a board member at the Padre Dam Municipal Water District in Santee who used to be on Metropolitan’s board, called the arrangement “immoral.”
The cost to ratepayers in San Diego is impossible to know. But, at one point, the Water Authority hoped to get $350 million from Metropolitan to help lower the cost of water from the desalination plant it eventually helped build in Carlsbad. Instead, it lost any chance of getting that help until this summer, when the courts took its side.
Now, paradoxically, that legal victory is turning into a political problem for the Water Authority’s management.
We often talk about “the Water Authority” as if it were one thing. On paper, it is. The Water Authority buys water and resells it to two dozen local water agencies, like Padre Dam or the city of San Diego.
But in reality, the Water Authority has two parts.
The first part is a 36-member board that sets policy for the Water Authority. The board members come from the local agencies that buy water from the Water Authority. Membership and voting power are based on how much water their agencies buy. The city of San Diego has 10 representatives. Padre Dam has one.
The second part of the Water Authority is its staff, led by long-time General Manager Maureen Stapleton. Their job is to advise the board and execute the board’s policies.
The board and staff are not elected. Though some Water Authority board members must win elections to be on the boards of their local water agencies.
Metropolitan has a similar structure: It has a 38-member board, including four who represent the Water Authority. General Manager Kightlinger leads its staff.
For a while, the clash between the two was almost a pure, head-to-head affair. The Water Authority’s board and its managers were taking on the rest of Metropolitan’s board and its managers. (At the engineering level, though, staff cooperated so that water continued to flow and people didn’t die of thirst.)
Now, in the days following Metropolitan’s court victory, the relationship seems to be becoming more complicated, less black and white.
For years, the Water Authority argued that Metropolitan charges too much to deliver the Imperial Valley’s water to San Diego. The argument was the center of a Water Authority-funded public relations campaign against Metropolitan and became almost a mantra.
In the end, the courts did not agree with the Water Authority.
That means San Diego customers will pay Metropolitan $6 billion more for water in coming decades than the Water Authority argued we should.
But the Water Authority won some smaller victories. Among them, the 1st District Court of Appeal said Metropolitan had illegally retaliated against the Water Authority for daring to sue Metropolitan in the first place.
When the Water Authority filed its big lawsuit against Metropolitan in June 2010, Metropolitan stopped sending money to San Diego to subsidize new local water projects. That was the strategy Kightlinger and Gastelum had put in motion.
The subsidies were supposed to help agencies reduce their reliance on the Colorado River and the rivers of Northern California, which are historically drought-prone and now increasingly fickle thanks to climate change.
The court agreed with the Water Authority that it was illegal to cut San Diego out of these subsidies. But the Water Authority team wasn’t necessarily happy – in fact, it’s splintering.
On Sept. 27, the big lawsuit ended.
Two days later, Kightlinger emailed the Water Authority to let it know that Metropolitan was ready to start getting applications for subsidies. Metropolitan flagged the email for the general managers at Padre Dam and the Olivenhain Municipal Water District in Encinitas.
Both agencies, along with the city of San Diego, are working on projects to turn sewage into drinkable water. But recycling is expensive – perhaps twice as much as the cost of other water supplies. So, money from Metropolitan would really help out.
Metropolitan, after years of trying to deny San Diego agencies this money, was now broadcasting that millions of dollars a year are suddenly available.
Except now, those local agencies ran into a surprise: The Water Authority doesn’t want them to get the money.
For years, the Water Authority argued Metropolitan was illegally withholding the subsidy. But in a little-noticed addition to a 2016 lawsuit that is still pending, the Water Authority made a new claim – it said Metropolitan is illegally collecting the fees that fund the subsidy program.
In other words, the Water Authority has paid attorneys to argue that San Diego has a right to Metropolitan’s subsidies. Now, after winning the right to get those subsidies, the Water Authority is arguing it is illegal for San Diego to receive subsidies.
“It’s very confusing,” said Allen Carlisle, the general manager of Padre Dam.
Now, he and his board are leading a rebellion against the Water Authority’s staff.
Carlisle said it’s “alarming” that Water Authority’s management are against subsidies. It could leave the region ill-prepared to cope with another drought, he said.
Padre Dam is working with the Helix Water District, the city of El Cajon and the county government on a recycled water project that would provide about 30 percent of the drinking water used in East County. The city of San Diego is also aiming for the same target with its own recycled water project. Olivehain is part of a group of 10 North County agencies working to create a regional recycled water system.
Carlisle said some of these local projects may not happen without help from somebody.
In addition to fighting against Metropolitan’s subsidy program, the Water Authority stopped offering a subsidy of its own to make sure such projects get built.
So, if the Water Authority has its way, the East County, the North County and the city are on their own.
That doesn’t sit well at some local agencies.
Jim Peasley, a Padre Dam board member, said the Water Authority seems to be acting against the best interest of local water agencies and their customers.
Padre Dam said it now intends to force the issue, which will set up a rare showdown with the Water Authority.
This week, the Padre Dam board is having a special meeting to vote on a resolution that calls on the Water Authority to drop the remaining lawsuits it has against Metropolitan and cooperate.
So far, though, the Water Authority shows little signs of reversing course. On Sept. 29, the Municipal Water District of Orange County – another Metropolitan customer – sent a letter to Water Authority Chairman Mark Muir urging the Water Authority “to turn away from expensive and wasteful litigation and to move towards effective cooperation.”
Augie Scalzitti, a longtime member of Padre Dam’s board, seemed to agree: In a board meeting last week, he said Little League teams come out of the dugout after a game and slap hands to congratulate one another on a good game.
The Water Authority’s leadership seems to have no intention of saying “good game” to the other side and going home. Muir instead replied to Metropolitan Board Chairman Randy Record by talking about the Water Authority’s other pending lawsuits and, in not so many words, asked Metropolitan’s board to get rid of the subsidy program.
In response to a series of emailed questions, Mark Hattam, the Water Authority’s general counsel, said the Water Authority isn’t “per se” challenging Metropolitan’s subsidy program. Instead, he said, the Water Authority is arguing that money collected from one agency shouldn’t be pooled and then used to help another agency.
That, of course, is the definition of a subsidy. For years, San Diego water customers were subsidizing projects in other places, now there’s a chance those other places could subsidize water projects here – but the Water Authority is arguing against that.
The Water Authority says it will accept a system where everyone gets back what they pay in. The Water Authority, in other words, is arguing for a subsidy program that does not provide a subsidy – but it says it is not against subsidies.
The head-splitting legal position may find some support when it goes before a judge, but right now it’s being viewed as a nonsensical policy position by some local officials, like those in Padre Dam, who want the money they thought for years they were fighting to get.
There’s always the chance, given the past vindictive behavior by Metropolitan, that the agency is dangling millions of dollars of subsidy candy in front of San Diego water agencies to incite this rebellion against the Water Authority – but, if so, the Water Authority is playing into Metropolitan’s hand. Or it could be a genuine olive branch from Metropolitan.
Kightlinger said his board wants to focus on the greater regional good, and subsidies are a way to do that.
“We’re all about regionalism and regional projects, so I don’t know how we’d say, ‘We’re about regionalism except for San Diego,’” he said.