Metropolitan Water v. Imperial Irr. Dist.

• Decision Date: 30 May 2000
• Docket Number: No. B119968.,B119968.
• Citation: 80 Cal.App.4th 1403,96 Cal.Rptr.2d 314
• Court: California Court of Appeals Court of Appeals
• Parties: METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, Plaintiff and Appellant, v. IMPERIAL IRRIGATION DISTRICT et al., Defendants and Appellants; Cadiz Inc., et al., Defendants and Respondents.

96 Cal.Rptr.2d 314

80 Cal.App.4th 1403

METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, Plaintiff and Appellant, v. IMPERIAL IRRIGATION DISTRICT et al., Defendants and Appellants;

Cadiz Inc., et al., Defendants and Respondents.

No. B119968.

Court of Appeal, Second District, Division 5.

May 30, 2000.

As Modified on Denial of Rehearing June 15, 2000.

Rehearing Denied June 23, 2000.

Review Denied September 13, 2000.^*

N. Gregory Taylor; Horvitz & Levy, Ellis J. Horvitz, Mitchell C. Tilner, Encino, and Nina E. Scholtz for Plaintiff and Appellant Metropolitan Water District of Southern California.

Allen, Matkins, Leek, Gamble & Mallory, David L. Osias, Jeffrey R. Patterson, Mark J. Hattam, San Diego; Horton, Knox, Carter & Foote and John P. Carter, El Centro, for Defendant and Appellant Imperial Irrigation District.

Daniel Hentschke, Oceanside; Hatch & Parent, Scott S. Slater, Robert J. Saperstein and Stephanie C. Osier, Santa Barbara, for Defendant and Appellant San Diego County Water Authority.

Rapport and Marston and Lester J. Marston, Ukiah, for Defendant and Appellant Chemehuevi Indian Tribe.

David E. Ridenour, Whittier; Morisset, Schlosser Ayer & Joswiak and Mason D. Morisset, Seattle, WA, for Defendant and Appellant Quechan Indian Tribe.

Felger & Associates, Warren P. Felger and Jennifer D. Reisz for Defendant and Respondent Cadiz Inc.

Robert C. Fellmeth and Elisa M. D'Angelo for Defendant and Respondent Center for Public Interest Law.

TURNER, P.J.

I. INTRODUCTION

State law mandates that the owner of a water conveyance system with unused capacity allow others to use the facility to transport water. The use of a water conveyance facility by someone other than the owner or operator to transport water is referred to as "wheeling." In return for wheeling, the water conveyance system owner is entitled to "fair compensation." (Wat.Code¹, § 1810.) The question in this case is whether as a matter of law the "Wheeling Statutes" (§§ 1810-1814) prevent the Metropolitan Water District of Southern California from adopting a fixed wheeling rate applicable to its member agencies that is based on the volume of water transported without regard to the nature of a particular wheeling proposal, including the distance traveled, or the particular facilities used, and that includes in its calculation capital investment and other system-wide costs. We conclude the Metropolitan Water District could act as it did subject to defendants' right to judicial review pursuant to section 1813. We reverse the judgment to the contrary and remand for further proceedings where the parties can litigate the appropriateness of the wheeling rate pursuant to section 1813.

II. BACKGROUND

A. Procedural History

The Metropolitan Water District adopted a fixed rate for wheeling transactions by its member agencies. The Metropolitan Water District pledged its expected wheeling revenues as security for certain commercial paper obligations and revolving notes. The Metropolitan Water District filed this action to obtain court validation of its wheeling rate. (Code Civ. Proc., § 860 et seq.; West's Ann. Water Code—Appen. (1995) § 109-163.) Seven defendants appeared in the trial court. They opposed the Metropolitan Water District's adoption of a fixed wheeling rate.² Six of those defendants have appeared in this court. They are: the San Diego County Water Authority³; the Imperial Irrigation District⁴; the Chemehuevi Indian Tribe; the Quechan Indian Tribe; Cadiz Inc. (previously Cadiz Land Company, Inc.); and the Center for Public Interest Law (CPIL).⁵

The trial court reached two conclusions as a matter of law based on the language of the Wheeling Statutes. First, the trial court concluded as a matter of law the Metropolitan Water District could not set a fixed wheeling rate in advance of a particular transaction and without regard to the nature of a specific wheeling proposal. Second, the trial court concluded as a matter of law the Metropolitan Water District could not include system-wide costs in calculating its wheeling rate. The trial court's decision will be set forth in greater detail later in this opinion. The trial court entered a judgment against the Metropolitan Water District and in favor of the defendants. The Metropolitan Water District appealed from that judgment. It also appealed from a post-judgment order as to costs and attorney's fees. Several defendants cross-appealed from the post-judgment order.

B. The Wheeling Statutes

Since 1980, it has been the declared policy of this state to facilitate the voluntary transfer of water. (§ 109, subd. (a).) The Wheeling Statutes were enacted in 1986. (Stats.1986, ch. 918, § 2, pp. 3171-3173.) These statutes addressed a potential impediment to wheeling transfers. Public and private water rights holders who desired to sell surplus water to other parties could do so only by agreement with water conveyance system owners. Otherwise, there was no practical way to move the water from seller to buyer. Some water conveyance system owners had refused to wheel water or had allowed the movement of water only after protracted negotiations. The Legislature recognized that the sale of excess water could be a source of income for farmers and others experiencing economic hardship while also promoting efficient use of this scare resource. Consequently, the Wheeling Statutes prohibit state, regional, or local public agencies from withholding use of their water conveyance systems by others provided, inter alia, unused capacity is available and fair compensation is paid for the use.

The legislation includes an uncodified statement of legislative intent. It states: "The Legislature hereby finds and declares as follows: [¶] (a) There has been a severe downturn in the state's agricultural economy which has made it difficult for many farmers to meet their financial obligations to the state or, regional or local public agencies for water facilities already in place. [¶] (b) In addition, many agricultural operations and public agencies experiencing financial difficulties or facing default may desire to sell, lease, or exchange water as a means of obtaining financial relief or augmenting their income, [¶] (c) Since the sale, lease, or exchange of conserved water does not result in the forfeiture of an appropriative right to water, the marketing of water may provide financial relief or supplemental income during periods of economic hardship. [¶] (d) It is the policy of the state to facilitate the voluntary sale, lease, or exchange of water or water rights in order to promote efficient use. [¶] (e) The sales, leases, or exchanges of water are to be made without injuring any legal user of water and without unreasonably affecting fish, wildlife, or other instream beneficial uses and without unreasonably affecting the overall economy of the area from which the water is being transferred." (Stats.1986, ch. 918, § 1, p. 3171.)

The Wheeling Statutes, sections 1810-1814, provide in pertinent part as follows. Section 1810 provides in relevant part: "Notwithstanding any other provision of law, neither the state, nor any regional or local public agency may deny a bona fide transferor of water the use of a water conveyance facility which has unused capacity, for the period of time for which that capacity is available, if fair compensation is paid for that use, subject to the following: [¶] (a) Any person or public agency that has a long-term water service contract with or the right to receive water from the owner of the conveyance facility shall have the right to use any unused capacity prior to any bona fide transferor. [¶] (b) The commingling of transferred water does not result in a diminution of the beneficial uses or quality of the water in the facility, except that the transferor may, at the transferor's own expense, provide for treatment to prevent the diminution, and the transferred water is of substantially the same quality as the water in the facility, [¶] (c) Any person or public agency that has a water service contract with or the right to receive water from the owner of the conveyance facility who has an emergency need may utilize the unused capacity that was made available pursuant to this section for the duration of the emergency. [¶] (d) This use of a water conveyance facility is to be made without injuring any legal user of water and without unreasonably affecting fish, wildlife, or other instream beneficial uses and without unreasonably affecting the overall economy or the environment of the county from which the water is being transferred." Section 1811, subdivisions (c) and (d) define the terms "fair compensation" and "replacement costs" as follows: "As used in this article, the following terms shall have the following meanings: [¶] ... [¶] (c) `Fair compensation' means the reasonable charges incurred by the owner of the conveyance system, including capital, operation, maintenance, and replacement costs, increased costs from any necessitated purchase of supplemental power, and including reasonable credit for any offsetting benefits<sup>6</sup> for the use of the conveyance system. [¶] (d) `Replacement costs' mean the reasonable portion of costs associated with material acquisition for the correction of irreparable wear or other deterioration of conveyance facility parts that have an anticipated life that is less than the conveyance facility repayment period and which costs are attributable to the proposed use...."⁷ Section 1812 states: "The state, regional, or local public agency owning the water conveyance facility shall in a timely manner determine the following: [¶] (a) The amount and availability of unused capacity. [¶] (b) The terms and conditions, including operation and maintenance requirements and scheduling, quality requirements, term or use, priorities, and fair compensation." Section 1813 provides: "In making the determinations required by this article, the respective public agency shall act in a...