The Santa Clara Valley Water District undercharged Great Oaks
Water for the water it pumped from the ground in the San Jose area
in 2005-2006, contrary to the company’s claim that it paid
substantially more than was justified under state laws, according
to the latest testimony in the ongoing trial.
The Santa Clara Valley Water District undercharged Great Oaks Water for the water it pumped from the ground in the San Jose area in 2005-2006, contrary to the company’s claim that it paid substantially more than was justified under state laws, according to the latest testimony in the ongoing trial.
The water district called George Raftelis to the stand as its expert witness on utility rate setting Monday to refute Great Oaks’ claim that it was damaged by the agency’s rate-setting practices. Raftelis, who has about 35 years of experience advising utility agencies on rates they should charge for services, produced his own extensive analysis on the different rates the district should have charged to groundwater, treated water, and surface water customers in Santa Clara County in 2005-2006.
Two models he produced on the district’s behalf indicated the water district did not charge customers in the northern region of the county enough to recover the public agency’s own costs, and therefore Great Oaks was not harmed.
One scenario, based on actual expenses and revenues in the fiscal year in question, said the water district should have charged Great Oaks and other retail customers in North County about $443 per acre foot. Another analysis, based on budgeted district transactions, said those customers should have paid $429 per acre foot in groundwater extraction charges.
The water district charged Great Oaks and other municipal and industrial customers in North County $420 per acre foot in 2005-2006. Testimony last week by Great Oaks’ expert witness, forensic accountant Thomas O’Rourke, indicated the company should have paid about $144 per acre foot. Great Oaks attorneys argued that based on violations of state law the company was overcharged by about $4.5 million for groundwater charges in 2005-2006.
Raftelis said both his analyses are “cost of service” models, based on the “best practices” employed by the water district, contracted revenues and expenses, state laws and legal rulings, additional revenues that offset the district’s costs, and other factors.
“We spent about a week (at the water district) clarifying all the budget documents and billing records, verifying and tracing the documents, and sourcing the documents to the point we were satisfied,” Raftelis testified.
Great Oaks’ lawsuit against the water district also claims about $4.6 million in groundwater charges – the total sum it paid in 2005-2006 – should be refunded because the agency violated California Prop. 218, which requires voter approval for any tax or property related fee such as the groundwater charge.
A ruling in April by Superior Court Judge Kevin Murphy determined that the water district did not secure voter approval for the groundwater charges, and therefore did not comply with Prop. 218 when collecting the fees from Great Oaks in 2005-2006. That ruling also said the district flouted the District Act because it spent revenues from the charges on unauthorized expenses such as vacant employee positions.
The current phase of the trial will determine how much in damages, if any, Great Oaks is to be rewarded due to these violations.
Raftelis noted that his conclusion on what the rates should have been reflects the water district’s “conjunctive use” practices, which benefited Great Oaks, according to Murphy’s April ruling.
“If it’s a total conjunctive use (scenario), the costs should be allocated proportionally because there is a benefit to all customers,” Raftelis said.
The water district charges different rates for customers in north and south county, municipal and industrial, treated water, and agricultural users.
Great Oaks has argued that the benefit it received from services funded by groundwater charges was far less than the amount it was required to pay.
In response to questioning by water district attorneys, Raftelis listed numerous differences in the methodologies and cost considerations between his analyses and O’Rourke’s. Specifically, he said O’Rourke’s testimony excluded at least $9 million in services that he determined did not benefit Great Oaks. Raftelis said these services, including those associated with treated water, did benefit North County groundwater customers such as Great Oaks.
Also, his models re-calculated costs including the amount allocated for vacant employee positions, which he said O’Rourke incorrectly figured.
While his testimony did not directly deny O’Rourke’s claim that the water district “double charged” taxpayers for an imported water cost of about $15 million, Raftelis said the numbers O’Rourke used did not match up. He agreed the district’s rate model included an expense of $15 million to recover costs for State Water Project purchases, the actual cost for the purchase was about $515,000 more.
Great Oaks’ witness last week said the water district charged both well owners and property owners for this expense, and the company’s attorneys cited this as a violation of Prop. 218.
In a statement, the water district replied that the evidence O’Rourke’s testimony relied on did not show they double charged.
Great Oaks attorney Tim Guster requested that key documents produced by Raftelis as evidence supporting his rate model were not revealed to the water retailer until Friday night and should not be allowed in the trial. Murphy allowed the evidence and associated testimony.
Great Oaks has a number of similar cases on file in Superior Court – including cases making the same allegations for each year since 2005-06. Those cases are on hold until a ruling on the current case is filed.
The company, which serves about 100,000 customers in south San Jose, has also filed two reverse validation lawsuits, claiming that the ordinance allowing the water district to collect groundwater charges from the county’s 4,000 well owners is invalid because it flouts state law. If those two claims are found in Great Oaks’ favor, everyone who paid groundwater charges to the water district the last two years would be eligible for a refund.
