Commentary:
Proposition 26 Under Fire in Appellate Court Ruling

By Dennis Cushman


A June decision by the state Court of Appeal threatens to significantly weaken ratepayer protections instituted by Proposition 26, unless the state’s high court intervenes.

When voters approved Proposition 26 in 2010, one of the fundamental principles was that state and local governments must be able to demonstrate that a charge to ratepayers does not exceed the necessary cost of the service, and that it bears a reasonable relationship to the benefits the payers receive.

The San Diego County Water Authority sued the Los Angeles-based Metropolitan Water District (MWD) of Southern California in 2010 alleging that MWD was adding State Water Project costs on top of the price it was charging to transport the Water Authority’s independent water supply through MWD’s Colorado River Aqueduct. Over time, MWD’s added charges, unrelated to the costs it actually incurs to provide transportation service, would top $7 billion.

Based on an extensive evidentiary record, the trial court found that state law and the state constitution prohibit MWD from including State Water Project costs in the price it charges for the transportation-only services. The state Court of Appeal issued an adverse ruling in June on that issue, breaking with other appellate court rulings and setting a dangerous precedent for California ratepayers.

The Water Authority has petitioned for review by the California Supreme Court, citing Proposition 26 requirements, and arguing: “The (appellate) court’s decision permits public agencies to evade the only protections vulnerable ratepayers have against otherwise unregulated and unaccountable public utilities.”

The petition further describes how the Court of Appeal’s decision stretches Proposition 26 requirements of cost-causation and proportionality “beyond recognition.” The decision weakens the cost control function of cost-causation and proportionality by opening the door to increasingly tenuous relationships between services and costs, allowing agencies like MWD to substitute self-serving claims of “regional” or “systemwide” benefits in lieu of evidence to support such generalizations. The Court of Appeal decision also undermines the cost accountability function of Proposition 26 cost-causation and proportionality requirements by condoning the kind of cost-spreading that allows agencies to pile on extra costs by obscuring waste and inefficiency.

The decision also undermines sensible efficiencies intended under the state’s wheeling law, designed to encourage full use of existing water delivery facilities before asking ratepayers to shoulder the cost of new projects.

Unless the high court accepts review of the decision, a nearly 40-year effort by California voters to rein in government charges and increase political accountability will be crippled, and the citizens of California will be the losers.

CalTax is joining the Water Authority as a friend of the court in hopes of ensuring that the safeguards voters fought so hard to secure in 2010 are not unraveled by an agency with monopoly control over Southern California’s water distribution system – the very kind of agency that most needs our vigilance, and one whose regulatory abuses Proposition 26 was intended to prohibit.

The state Supreme Court is expected to determine by September 29 whether it will review the case. If so, a final ruling could be 18 to 24 months away.

To learn more about the case, go to www.sdcwa.org/mwdrate-challenge

Dennis Cushman is assistant general manager of the San Diego County Water Authority.

 

 

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