State legislation approved in 2001 permits a Southern California wholesale water agency to sell water directly to retail customers, the Second District Court of Appeal has ruled.

The ruling was a victory for the Castaic Lake Water Agency over leaders of the Newhall County Water District and slow-growth advocates. The two sides are at war over the amount of water truly available to serve the Santa Clarita Valley in Los Angeles County (see CP&DR Local Watch, March 2004).

The Legislature created the Castaic agency to acquire water and water rights, and to provide water at wholesale to the Santa Clarita Valley. In 1999, the agency approved a retail service agreement with the private Santa Clarita Water Company, which provided water service primarily in the City of Santa Clarita. A few weeks later, Castaic purchased all of the private company’s assets and shares.

Four people — including Newhall County Water District Directors Lynne Plambeck and Joan Dunn, acting as individuals — filed a lawsuit challenging Castaic’s actions. A Los Angeles County Superior Court judge ruled for Castaic, but the Second District overturned that decision and sent the case back to the lower court. Klajic v. Castaic Lake Water Agency, (2001) 90 Cal.App.4th 987 (see CP&DR Legal Digest, September 2001). Although the appellate court did not rule on the merits, the court said that if the water wholesaler merged with the private water company, it would violate Water Code § 12944.7, which created the Castaic agency.

Less than two months after the Second District ruled, the Legislature approved and Gov. Davis signed AB 134 (Kelley). The measure amended Castaic’s enabling act to allow the agency to sell water at retail within a certain area, which, not coincidentally, matched the Santa Clarita Water Company’s service area.

When the litigation returned to the Superior Court, Castaic’s four opponents maintained that the merger was still illegal under § 12944.7, subdivision (b). They argued that the statute permitted a retail sale by Castaic only via a contract with a company that was regulated by the Public Utilities Commission (PUC). The court agreed, finding that AB 134 actually imposed an additional hurdle to Castaic’s retail sale. The court ordered Castaic to stop selling water at retail. Castaic appealed, and this time the Second District sided with the agency.

Castaic argued that the original provision in the enabling legislation that required a contract with a separate retailer subject to the PUC was irrelevant because of AB 134. The court agreed.

“Newly enacted § 15.1 [of the enabling act] now authorizes the agency to sell water to the ultimate consumer within a specified geographic area ‘notwithstanding’ or despitethe prerequisites to that authority in § 12944.7, subdivision (b), and the prohibition in § 15 of the agency enabling act,” Justice Richard Aldrich wrote for the unanimous three-judge panel. The more recently approved statute “necessarily controls,” he wrote.

The intent of AB 134 was “to circumvent the hurdle to retail authority caused by the agency’s takeover of the water company,” Aldrich wrote. “Furthermore, the agency sponsored Assembly Bill 134 while it was embroiled in this litigation … We doubt the agency would have expended the time and resources to have the bill enacted merely to add another limitation to retail authority on top of § 12944.7, subdivision(b)’s, requirements.”

The Case:
Klajic v. Castaic Lake Water Agency, No. B161069, 04 C.D.O.S. 6840, 2004 DJDAR 9291. Filed July 29, 2004.
The Lawyers:
For Klajic: Jennifer Kilpatrick, (323) 852-1000.
For Castaic: Barry Levy, Horvitz & Levy, (818) 995-0800.