WATER RULING CLOUDS DEAL CASTAIC AGENCY ACCEPTS IT CAN'T RUN RETAIL OUTFIT.

Byline: Kathleen Sweeney Staff Writer

SANTA CLARITA - The Castaic Lake Water Agency acknowledged on Tuesday it cannot operate its Santa Clarita Water Co. because the retail company is not regulated by the state.

For CLWA, a wholesaler, to operate the company, it would have to establish a separate entity subject to the Public Utilities Commission oversight, according to a memo drafted Tuesday by CLWA board President Donald R. Froelich to the board.

A special meeting is scheduled for Monday to review options and to further analyze the appellate court decision announced Friday in favor of four women who sued to block the CLWA's $63 million cash purchase of the company.

``The decision contains both good as well as questionable results,'' Froelich said in the memo. He later said the issue is on hold until the agency's general counsel returns from vacation.

As the case heads back to trial court, the plaintiffs are weighing their settlement options, which range from asking that the company be sold back to its original owners to having it become a county water agency.

And they just might ask the court to require a financial audit of the water agency.

``We are real pleased with the outcome,'' said Jill Klajic, a former Santa Clarita councilwoman who filed the suit.

At issue is a decision by the Second District Court of Appeal that upholds much of the lawsuit filed by Klajic; Lynne Plambeck, an official of an area environmental group; Joan Dunn, whose husband, Ed Dunn, sits on the CLWA board; and Canyon Country resident Jackie Bettencourt.

They sued to block CLWA, which manages Santa Clarita's imported water supply, from buying the Santa Clarita Water Co., which has 21,000 residential and business customers. The suit claims CLWA is considered a wholesaler and illegally purchased the water company.

The court ruled that the agency had the right to buy the company, but doesn't have the authority to run it. Also, according to the state Water Code, a retailer is subject to regulation by the PUC. Since it was purchased in August 1999, the water company has not been subject to those regulations.

``They purchased it illegally,'' Klajic said. ``They knew they didn't have the right to operate that business.''

What angered the women and sparked the filing of the suit nearly two years ago was that CLWA purchased the company with taxpayer money, and might have made the public responsible for cleaning up contamination in two wells that has been linked chemicals from the old Bermite property, a former defense contractor in Saugus, Plambeck said.

They also were concerned that the CLWA would become a monopoly, trying to control all water flowing into the valley, Plambeck said.

That fear surfaced during the last few weeks when the Newhall County Water District, another retailer, withdrew its support for a bill that would change language in the state Water Code, clarifying that a wholesaler such as the CLWA can act as a retailer.

Newhall Water District officials realized its boundaries overlapped with Santa Clarita Water Co.'s, causing fear that CLWA could take over its territory.

The agency officials, with Plambeck dissenting, agreed to support Assembly Bill 134 again after amendments were made to the bill.

The women are preparing a letter to send to the Agricultural and Water Committee, which is awaiting the court's ruling on the suit before voting on whether to pass a bill.

Committee members also said a groundwater management plan, promised by CLWA more than a decade ago, must be developed for the area. The committee is scheduled to meet next month.

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The law prevents the Castaic Lake Water Agency from operating the Santa Clarita Water Co., which it bought in 1999.

Shaun Dyer/Special to the Daily News