HomeMy WebLinkAbout1999-02-23 - AGENDA REPORTS - CLWA POTENTIAL PURCH WATER CO (2)CITY OF SANTA CLARITA
AGENDA REPORT
UNFINISHED BUSINESS
DATE: February 23, 1999
City Manager Approi
Item to be presented
SUBJECT: POTENTIAL PURCHASE OF A RETAIL WATER COMPANY BY THE
CASTAIC LAKE WATER AGENCY
DEPARTMENT: City Manager's Office
RECOMMENDED ACTION
City Council reaffirm its policy that the purchase of a retail water company by the Castaic Lake
Water Agency (CLWA), a water wholesaler, would constitute a conflict of interest and would
be a violation of California State Law. Furthermore, the City Council request that the CLWA
withdraw from its discussions with the Santa Clarita Water Company to purchase the company.
BACKGROUND
The Castaic Lake Water Agency (CLWA) has recently initiated action to purchase the Santa
Clarita Water Company. It is recognized that this is not in the best interest of the community
for a wholesale water company to act as a water retailer, and that it is a violation of State Law
and their original charter for the CLWA to do so.
Wholesale and Retail — Is it in the best interest of the community?
As water is such a critical issue in Southern California, there are concerns regarding the
conflict of interest that arises if a water wholesaler were to become a retailer. The following
six examples point out the inherent conflict of interest that would emerge.
1. A wholesaler who sells water to itself to sell again to the end consumer creates a monopoly,
with total pricing control.
2. A wholesaler acting as a retailer may choose to use less groundwater, which is less
expensive to consumers, instead purchasing more expensive State Water Project water from
itself, thus eliminating consumer protection.
3. A wholesaler acting as a retailer has a financial incentive not to clean up any tainted wells,
because they receive a higher price for selling State Water Project water, and the less
groundwater used, the more State water may be sold.
4. The rights to pump groundwater versus purchase water cause a conflict between
wholesalers and retailers as evidenced by the litigation between CLWA and the Santa
Clarita Water Company several years ago.
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5. The wholesaler would gain another voting position on their own board, which is supposed
to be balanced with board members representing the water retailers.
6. The oversight of the wholesaler comes from a board of directors that is not completely
elected by the residents of the Santa Clarita Valley.
State Law
In 1970, the Upper Santa Clara Water Agency was renamed, thus creating the Castaic Lake
Water Agency (CLWA). The CLWA's creation is spelled out in Chapter 103 of the California
Water Code Appendix, entitled the "Castaic Lake Water Agency Law". Section 15 of the Castaic
Lake Water Agency Law, titled General Powers of Agency, states the following:
"The agency may acquire water and water rights, including, but not limited to, water
from the State of California under the State Water Resources Development System, and
provide, sell, and deliver that water at wholesale only, for municipal, industrial,
domestic, and other purposes, through a transmission system to be acquired or
constructed by the agency."
It is the City's understanding that CLWA is relying upon Water Code Section 12944.7, which
was added by Assembly Bill 2827 in 1990, to justify the legality of potentially operating as a
water retailer. It is the City's understanding that the intent of the Bill, which was proposed
by CLWA, was simply to allow the Agency to issue tax-exempt bonds to finance facilities.
As further evidence that the CLWA may not act as a water retailer, during the 1995/96
Legislative Session, the CLWA sponsored Assembly Bill No. 1263, authored by State Senator
Pete Knight that proposed changing the scope of the Agency's authority, allowing the Agency
to be a water retailer. The Senator dropped the legislation, due to opposition by the City
Council, before it was voted upon by the legislature. The following introduction to Assembly
Bill No. 1263 explained its intent:
"An act to amend Sections 15 and 15.1 of, the Castaic Lake Water Agency Law, relating
to the Castaic Lake Water Agency. AB 1263, as introduced, Knight. Castaic Lake Water
Agency. Under existing law, the Castaic Lake Water Agency is authorized to acquire
water from the State Water Project and to act as a wholesale distributor of that water.
This bill would also authorize the agency, with specified exceptions, to exercise the powers
and authority granted to districts under the County Water District Law for purposes of
providing retail water service."
Similar legislation was sought by CLWA in 1993 (AB 2093) to empower to function as a water
retailer. That bill also expired without any action being taken by the Legislature.
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