The Morning Report
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Just days before Christmas, Mayor Kevin Faulconer became the first mayor since Jerry Sanders in 2012 to appear before the 36-member board of the San Diego County Water Authority. The city is the largest member agency of the Water Authority with 10 board members.
Faulconer was there to dip a toe into the decade-long courtroom fight between the Water Authority and Los Angeles-based Metropolitan Water District of Southern California.
“We are really at an important juncture in our regional water history, in terms of the path that we choose to go forward,” he told Water Authority directors that day. The mayor noted their responsibility to “that $231 billion regional economy” and the “quality of life” for more than 3 million residents.
“This morning, I think we have a real opportunity to begin a new chapter between the San Diego County Water Authority and the Metropolitan Water District, an important new chapter,” Faulconer said, emphasizing that “fresh start” had to be “in person,” not via “telephone calls, letters back and forth.”
But the board’s actions beginning just moments after Faulconer’s plea to leave the dispute behind – and in subsequent weeks highlighted by sharp words from Chairman Jim Madaffer – suggest the agency is instead doubling down on the feud.
Sitting in the wings listening to Faulconer that day was another special guest, Metropolitan General Manager Jeff Kightlinger. Metropolitan owns and operates the 242-mile Colorado River Aqueduct, Southern California’s primary drinking-water resource, and also controls water imports from Northern California via the 444-mile California Aqueduct. The Water Authority, Metropolitan’s biggest customer, is working to dial down that relationship while bolstering its own local water-supply “portfolio.”
As with any long-time, evolving marriage facing an uncertain future (in this case, climate change, earthquakes, and, as Faulconer noted, the prospects of a growing city), attorneys sometimes get involved. For the Water Authority and Metropolitan, it’s been a 10-year court battle over the rates Metropolitan charges to deliver water.
The arguments are as complex and head-scratching as the accompanying public-relations campaigns are entrenched and fierce between the two agencies. Legal and PR costs over the years have surged into the tens of millions.
Unsurprisingly, few folks wanted to delve publicly into the legally mired relationship. But some – emboldened by a Metropolitan offer in November to settle the long-running spat, followed by a December Water Authority counteroffer – seemed ready to toss more fuel on the fire. Asked about reaching a settlement prior to a scheduled mid-June trial in San Francisco, Kightlinger said in a recent interview, “I don’t see it happening, frankly.”
“It’s sort of a one-way dispute,” he said. “I mean, the Water Authority has sued us now over a dozen times. We’ve never sued San Diego. We don’t have a dispute going south. They have a dispute going north. They seem determined to run it to the ground.”
This rift runs deep. Long story short, courts so far have ruled, for the most part, against the Water Authority’s claim that Metropolitan overcharged it roughly $7 billion to deliver Colorado River water.
Kightlinger was in town last month to discuss a settlement offer Metropolitan was dangling, as he put it to Water Authority directors, “to end this litigation.” In closed session that day, the Water Authority board voted “not to act upon” the offer and instead approved a counteroffer.
So what’s in these offers, you ask? First, money up front — Metropolitan has offered $72 million to settle water-rate claims, while the Water Authority countered seeking $140 million. Second, enough lingo, abbreviations and references to numerous agreements to choke a largemouth bass.
From Metropolitan’s perspective, its settlement offer “provides an economic benefit to SDCWA in excess of $5 billion, most of which SDCWA cannot obtain through litigation, in exchange for SDCWA’s agreement to terminate the pending litigation and disputes with finality.”
Those last two words — “with finality” — seem a key sticking point in the eyes of Water Authority leadership. New Water Authority General Manager Sandra Kerl appeared before the Metropolitan board in Los Angeles Jan. 14 to make that point.
Noting that the Water Authority’s counteroffer “would immediately and fully resolve [rate-setting] issues for a 12-year period going back to 2010 and forward to at least 2022,” Kerl said her agency could not go beyond that.
“As much as we would like to have a forever conclusion and solution in terms of legal dismissals, releases and waivers and the like, it’s just not possible in the context of our public agency’s responsibility representing the San Diego County ratepayers,” she said.
She added that an Metropolitan proposal to amend the exchange agreement related to Metropolitan’s delivery of water from the Imperial Irrigation District was appreciated but unrelated to the litigation.
Madaffer, a former San Diego City Council member who is now chairman of the Water Authority board, offered a more brash assessment this week.
“The Water Authority is forging a path to self-sufficiency, and there may be a time in the not-so-distant future that San Diego doesn’t need MWD for most of its water deliveries,” he wrote in a message. “As a result, why would we sign up for a deal that locks us into a fixed price for the next 100+ years?”
The exchange agreement, enacted in 2003, runs 110 years and ties the exchange price to Metropolitan’s rates, which are set biennially. In its November settlement offer, Metropolitan proposed setting a fixed price (at the time $450 an acre-foot, roughly 326,000 gallons) plus a “construction industry escalator” that Metropolitan employs for water projects. (That price rose to $482 an acre-foot as of Jan. 1.)
Metropolitan has estimated that the change would save the Water Authority anywhere from $5.5 billion to $8.4 billion over the 110-year term. Should the state pursue a Delta water tunnel, a portion of the transportation cost of that project would be added to the exchange price under the Metropolitan offer following completion of a cost-of-service study.
Madaffer threw water on the savings estimates.
“This is not a real number and has zero to do with the pending litigation,” he wrote. “MWD threw out this number to generate headlines. It is based on a speculative argument.”
He said costs could shift among water agencies or drop “significantly” in the future, which he argued is not uncommon in the commodities world. Madaffer pointed to the solar energy market, where “existing electric utilities in California are locked into 2010-type rates for solar for the next 20 to 30 years when it can be purchased for much less today. The Water Authority is not going to fall into the same trap, especially when we are so close to not needing much MWD water anyway.”
“Like most utilities, the commodity is not the price,” MWD’s Kightlinger countered. “We get all of our water from the state of California and the Colorado River essentially for free. What we’re paying for are the dams, reservoirs, pipes, aqueducts, pump stations, electricity and the chemicals to treat it. It’s just a physical reality that San Diego County, not blessed with natural water resources, receives 85 percent of the water it consumes through Met pipes.”
Kightlinger confirmed that he met with Faulconer in early December while he was in San Diego attending a water conference. (The mayor’s calendar indicates MWD Chairwoman Gloria D. Gray joined Kightlinger in the meeting. Last January, Faulconer attended Gray’s swearing-in ceremony.)
The Met general manager said he answered questions based on a quick review of Metropolitan’s offer by a deputy city attorney. That Nov. 27 review document, obtained by Voice of San Diego, focuses on five Metropolitan talking points regarding its settlement offer.
On Metropolitan’s assertion that the Water Authority would not be precluded from suing Metropolitan at a later date on a “new future act, omission or practice,” the deputy city attorney wrote that “MWD is correct that CWA would be able to sue in the future, however, the scope of any claim would be severely limited by the provisions of the proposed settlement agreement.”
Regarding Metropolitan’s contention that the settlement price term would protect the Water Authority from future maintenance and repair costs of the State Water Project (the system that transports water in Northern California to Southern California), the city attorney added, “the settlement agreement does not prevent MWD from increasing other rates, fees and charges or adopting new charges to recover from CWA costs associated with the maintenance and repair of the SWP.”
The city faces an interesting conundrum. In December, the Metropolitan board voted unanimously to provide more than $285 million in incentives for San Diego’s $1.4 billion Pure Water recycling project. At the time, Faulconer said in a Metropolitan press release, “Increasing water supply and reliability is essential for San Diego’s continued growth, and this significant investment by the Metropolitan Water District into the Pure Water project is going to help San Diego ratepayers for years to come.”
But part of the Water Authority’s legal argument challenges the method in which those funds are collected.
“If the Water Authority prevails in its lawsuits, San Diego’s Pure Water project would lose $285 million we pledged to help them build it,” Kightlinger warned. “My working assumption is that’s why the mayor appeared” at the December Water Authority meeting.
Kightlinger said the mayor told him he would attend the December meeting “and speak sort of favorably of settlement without getting into the details, because he figures that’s the Water Authority’s job.”
Faulconer’s office did not respond to questions about Kightlinger’s version of events.
San Diego City Councilman Chris Cate, who sits on the Water Authority board, said he hopes the lengthy legal brawl will end soon. “I would like nothing more than to settle the cases between MWD and CWA,” he said in a message. “We need to work together to address the challenges every water agency up and down the state is facing. Hopefully there will be continued opportunities to meet and discuss potential settlement terms before we go back to court in June.”
For his part, Madaffer thinks a public forum with an independent mediator — he suggested Voice of San Diego — would be beneficial.
Kightlinger, meanwhile, sounded skeptical. “I don’t know if we’ll be there,” he said. “That sounds like a local thing. If they make another offer, we’ll obviously look at it.”