TS sent me this article that describes a lawsuit of the San Diego County Water Authority against the Metropolitan Water District of Southern California. (Here's SDCWA's press release.)
SDCWA is suing because MWD charges it more than the cost of delivering its water ($60 million over 2 years). MWD uses those excess charges to subsidize delivery of water to other MWD members.
This lawsuit is a replay of a suit that SDCWA brought before, the suit that lead me to write my dissertation, Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California.
On pages 4--6, you can read about these cross-subsides. The rest of the dissertation discusses why some members pay more than others, how fights emerge, and how MWD is inefficient in so many ways.
I have offered to serve as an expert witness to SDCWA, but they haven't replied. (They lost last time, maybe they will look for some more help this time :)
Bottom Line: MWD's cross-subsidies lead to conflict within the organization and inefficient water use in Southern California.