An attorney for the Santa Clara Valley Water District said Great
Oaks Water Co. is due a credit of only about $738,000 in
overcharges for groundwater extraction, rather than the $2 million
the company says it is entitled to because the agency violated
state law.
An attorney for the Santa Clara Valley Water District said Great Oaks Water Co. is due a credit of only about $738,000 in overcharges for groundwater extraction, rather than the $2 million the company says it is entitled to because the agency violated state law.
Great Oaks representatives argued, based on expert witness testimony and violations of state law, that the services they received from the water district during fiscal year 2005-2006 were not worth the $4.6 million it paid in groundwater charges.
“Due to the benefits received and the recognition (of these benefits) by the court, Great Oaks is not entitled to a full refund,” said water district attorney Philip Matthews in his closing arguments Tuesday.
He was alluding to Superior Court Judge Kevin Murphy’s ruling in April acknowledging that, even though the water district unconstitutionally collected groundwater charges, the company who sued the agency still benefited from the management and recharge of groundwater basins and associated facilities.
But whether or not Great Oaks was charged more than the services were worth may not be a factor in the case’s outcome. The San Jose company’s chief complaint is that under state law they are entitled to a full refund of all property-related fees collected in defiance of the constitutional amendment. That refund would be about $4.6 million, plus interest, according to Great Oaks attorney Tim Guster.
In addition, Great Oaks asked the judge to require the water district to come into compliance with Prop. 218 by securing voter approval for groundwater charges, which are paid by 4,000 well owners in Santa Clara County.
Tuesday’s closing arguments wrapped up the remedial phase of the trial in which Murphy ruled in April that the water district collected groundwater charges in violation of Prop. 218 and the District Act, a state law that created the public agency. Murphy indicated he will announce a tentative ruling, which will specify a refund amount if any, in the next few days.
Matthews said Great Oaks is due the $738,000 credit for future groundwater charges instead of a $2 million refund. He arrived at that figure by balancing the two parties’ conflicting witness testimonies.
Great Oaks’ witness, forensic accountant Thomas O’Rourke, produced an analysis of the groundwater charges and what expenses they should include, claiming that Great Oaks was overcharged by about $2 million in the year in question. However, the water district’s expert on utility rate-setting, George Raftelis, determined that Great Oaks was not charged enough for groundwater extraction in 2005-2006. Matthews explained in court Tuesday that Raftelis’ analysis was more accurate because it includes the recovery for costs of services that O’Rourke did not consider. For example, he said subsidies for treated water services should be considered in setting groundwater charges because the services benefit all water users through “conjunctive use” practices.
“Having treated water in the North (County) Zone reduces the demand on the (groundwater) basin,” Matthews said.
O’Rourke excluded treated water costs from his rate model, while Raftelis and water district staff included the costs in their determination of rates.
Great Oaks attorneys argued one reason O’Rourke’s analysis of the rates is more reflective of the District Act is because it considered the ultimate uses of water bought and sold by the water district. For example, Guster said in 2005-2006 the water district sold about 10,000 acre feet of water to wildlife refuges, and included this water in the recovery for groundwater services. However, that water should not have been considered in the rates because it did not benefit Great Oaks, Guster said.
“The water district has abused its discretion,” Guster said in his closing arguments.
Also in closing arguments, Matthews said Great Oaks is not entitled to refunds due to Prop. 218 violations the water district has been implicated for, citing a previous ruling in another court. However, Great Oaks attorney Robert Johnson noted that article 13 of the state Constitution allows a full refund for illegally collected taxes.
The ruling is likely to influence other lawsuits filed by Great Oaks against the water district that are pending in Superior Court. Those cases are nearly identical to the current one, requesting groundwater charge refunds for each year since 2005-2006 up to the current year, based on the same violations of state law.
Water district staff and directors have indicated they will appeal the ruling if it orders a refund on the basis of the Prop. 218 violations.
