Even though a judge has ruled twice in a lawsuit brought by Signal Hill and two other cities that the Water Replenishment District of Southern California (WRD) illegally imposed fees by not complying with state law, how much money, if any, the water agency will be forced to pay back to the cities has yet to be determined in court.
The controversial and complex lawsuit filed by Cerritos, Downey and Signal Hill against the WRD is entering the damages phase of the case. Los Angeles Superior Court Judge James C. Chalfant first ruled in April 2011 that the WRD’s replenishment assessments (RAs) imposed on cities and private entities for pumping groundwater from aquifers didn’t follow Proposition 218, which requires that property owners be notified and allowed to protest any rate changes.
Another judge, Ralph Dau, ruled in December 2012 that the cities have the right to seek a refund for past charges and has recently set March 5 as the date for a trial-setting conference.
During a status report on the litigation to the Signal Hill City Council at its Feb. 19 meeting, Steve Myrter, the City’s director of public works, said the case is significant not only because the cities now have an opportunity to seek a return for “overcharges” imposed from 2007 to 2011, but that WRD may now be forced to comply with Proposition 218 when it adopts future rates, which he said “enables the pumpers to have a…closer review of how RAs are set.”
Myrter explained that what initiated the lawsuit was the fact that the WRD has increased its water-pumping rates 83 percent in the last decade, jumping from $112 per acre-foot in 2002 to $205 per acre-foot in 2010. Even after a lawsuit was filed in 2010 to dispute the rising rates, the WRD still raised its assessments by an additional 19 percent to the current rate of $244 per acre-foot, he said. Myrter added that, last year, WRD assessments accounted for 31 percent of the City’s water department operating budget.
Robb Whitaker, general manager of WRD and a Signal Hill resident for more than 10 years, however, told the City Council that the cost of importing water to replenish what cities take from underground aquifers has also increased throughout the years, which is much of the reason why the WRD has raised its rates.
He said about 75 percent of the WRD’s budget is for purchasing imported water to put back into the ground, since judgments granted for pumping rights in the 1960s “far exceeds” the natural replenishment of aquifers. Whittaker said WRD has seen an average 8-percent per-year increase in the cost of purchasing water, adding that the Metropolitan Water District interrupted its replenishment category for the first time in 50 years, forcing the WRD to pay higher costs. He said the WRD has issued a $63-million bond to pay for projects that would reduce the agency’s dependency on imported water.
“We too are affected by water costs,” Whitaker said. “We’re facing the same sort of issues. We’re trying to develop local projects that will offset our demand for imported water … so we can get away from that issue.”
Still, City Attorney David Aleshire said the underlying issue in the case is how Proposition 218 will impact how WRD sets its rates. Currently, the WRD sets “uniform” rates for pumpers in the Central and West Coast basins of the southeastern portion of Los Angeles County, a 420-square-mile area that includes more than 40 cities and nearly 4 million residents, accounting for 10 percent of the State’s population.
Signal Hill and other cities that are located in the Central Basin, however, claim they are subsidizing the benefits of water users in the West Coast Basin, where it costs more for WRD to replenish water due to having to manage more “sea water barriers” that separate freshwater from salt water, according to Myrter.
Aleshire said WRD’s unwillingness to settle the case is being spurred by political pressures, since the WRD may have to charge West Coast ratepayers more for pumping water than Central Basin water users if the agency were forced to comply with Proposition 218.
“The political problem for WRD is that if they accept our argument, the people in the West Coast Basin are going to be paying a lot more,” he said. “That creates a lot of political conflict in terms of their board with accepting this idea that really there shouldn’t be a uniform rate within these two basins, and I think really that is the underlying problem that has prevented us from working this out.”
Also in dispute is how much “underflow” water runs from the Central Basin to the West Coast Basin, which is the main argument that WRD is using for implementing uniform rates.
Aleshire said the court hasn’t determined whether the WRD would be required to notify the more than 800,000 parcel owners or 200 pumpers in both Central and West Coast Basins of rate changes under Proposition 218.
Whitaker, however, said a major concern for the WRD is the cost of the notifications. He also said both parties need to resolve the issue over how much underflow movement there is in the inner basin. He added there could be a “long debate” about previous studies that have determined how much underflow there has been historically versus how much there is now that could continue to drag out the lawsuit.
“It’s not necessarily a matter of WRD being afraid of notifying anyone and there being a protest vote… a lot of it has to do with this inner basin issue,” he said. “It’s a concern about the cost and what it would cost to do that. We have a very large service area.”
Signal Hill City Manager Ken Farfsing, however, said complying with Proposition 218 is more than just giving notice and requires a protest hearing, in which if a majority of property owners protest fees, WRD wouldn’t be able to raise rates. “It gets to accountability of the WRD for their rate increases to all of their member agencies and every resident and business that’s paying water rates in the Central Basin and also the West Coast Basin,” he said.
One of the issues brought up is the fact that the ruling in 2011 led Signal Hill and the two other cities in the case to stop paying their water replenishment assessments to the WRD since the attorneys representing the cities determined that it would constitute a “gift of public funds.” According to Signal Hill’s finance department, the City currently owes the WRD $975,653 as of the end of December that the City is keeping in a liability fund until the court awards damages.
The case, however, has sparked other lawsuits since Judge Chalfant’s ruling in 2011. Currently, the cities of Bellflower, Lynwood and Pico Rivera, along with the Central Basin Municipal Water District and Texas-based oil company Tesoro have filed similar lawsuits against the WRD and have withheld payments as well. According to attorneys for the WRD, the entities now owe about $16 million to the WRD. The WRD has so far failed to receive an injunction from the courts to thwart the entities from continuing to not pay their assessment fees.
In a phone interview with the Signal Tribune, Ed Casey, attorney for the WRD, said Judge Dau now wants both the WRD and the cities to provide their input on a plan to “manage” the eventual trial. Casey said he is confident the WRD will prevail in the case.
“We are very confident at prevailing at trial for a number of different reasons, but most importantly we believe we’ll be able to show that the cities of Cerritos, Downey and Signal Hill have been taking the cheapest source of water in this region, mainly ground water, from the Central Basins and not paying for it,” he said. “We also think that we’ll be able to show that these cities, while not paying the [WRD] the replenishment assessment, may have been charging residents, through their own water bills, for the amount of the replenishment assessment.”
Casey added that the judge has already voted down a federal claim brought by the cities seeking a refund on the basis that the WRD infringed on constitutional rights, and he added that the statute of limitations only allows the cities to claim a refund for one year rather than five years. Casey said the WRD is disputing refunds for any years of prior charges.
A Signal Hill City staff report notes, however, that the court ruled in favor of the cities, concluding that the cities complied with any claim requirement and that the damages claim now proceeds to trial.
“WRD filed a motion that sought to say that the third cause of action had no basis as a matter of law,” said Lindsay Tabaian, an attorney for the cities. “The judge determined that wasn’t the case and the city had the right to proceed to the damages phase with respect to state law.”
In addition, Aleshire refuted claims by the WRD that the entities are simply “freeloaders” looking to pump water for free.
“We don’t want this for free,” he said. “If they would go through a proper noticing and a proper hearing process, we could scientifically go through if this underflow exists and what the appropriate charge is for each basin. We’d be happy to pay, but evidently, not withstanding our saying that, we have to just go down this litigation road to the bitter end.”
After the City Council meeting, Myrter said that, if the court rules that WRD must pay back funds, however, “ratepayers would definitely get the benefit.” However, he added that the courts would determine the exact terms.
In addition, Aleshire said the WRD still has a right to appeal the judge’s ruling on Proposition 218 in addition to any damages awarded to the cities.
Still, as litigation costs continue to mount, representatives from both the City and the WRD said it would be in the best interest of ratepayers to work out a settlement, possibly through scientific studies to come up with an assessment agreement.
“We would be happy to try and come up with a way of sorting this out without litigating to the nth degree, but so far those discussions haven’t gone to a place where we could just work it out through an agreement,” Aleshire said. “We’re certainly always open to that conversation and would prefer to deal with it around the table than through litigation.”
Whittaker agreed with the sentiment. “That would be very important for us to try and sit down and work some of these issues out instead of fighting in court.”