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Commentary by Lynne Plambeck
| Sunday, Jun 26, 2016

mug_lynneplambeckAs everyone probably knows, Enron was an energy company that collapsed at the end of 2001 after it was revealed that its reported financial condition was really just creative accounting, over-stating profits and hiding liabilities in off-book maneuvers. According to Wikipedia, “Enron has since become a well-known example of willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States.”

So the question is, why did Enron get mentioned at recent Castaic Lake Water Agency meetings?

Background

Castaic Lake Water Agency was formed in 1962 to deliver state project water to the Santa Clarita Valley. When it was established by a special act of the California Legislature, Section 15 of the act stated: “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” (emphasis added).

Like the Metropolitan Water District, CLWA was supposed to distribute state water to the local water retailers – not take them over. The legislature wanted to guard against a vertical monopoly which could lead to unfair pricing and distribution of the Santa Clarita Valley’s water resources.

But apparently the management and some board members of the agency are not too concerned about following their own law. In 2000, CLWA illegally acquired Santa Clarita Water Co., a water retailer. After the public won an appellate court decision on the matter, CLWA quietly went to the Legislature, and in a compromise deal known as AB134, the Legislature gave them the right to own only Santa Clarita Water Co.

But the Legislature was still concerned about the Santa Clarita Valley’s groundwater going to serve the Newhall Ranch development and made special provisions to ensure that SCV residents would not lose their groundwater to Newhall Land-Lennar’s huge, 21,000-home west-side project.

CLWA broke that agreement. In December 2012, in a lightening-swift action orchestrated behind closed doors, the agency illegally acquired Valencia Water Co. over the winter holidays with only 24 hours’ notice to the public. It cost the taxpayers $73 million, and they had no say in this purchase.

The purchase contract agreed to supply water to 30,000 housing units in Newhall Land-Lennar projects on the west side of our valley, including Newhall Ranch. There was a huge public outcry against this, and litigation to unwind the deal is still tied up in court – putting Valencia Water Co. in limbo.

In the meantime, CLWA has been busy raising rates on Valencia Water customers (17 percent in 2015, and they proposed another 25 percent rate increase in June, for which the hearing has been delayed.) Formerly the California Public Utilities would have regulated such enormous increases. But CLWA successfully argued that Valencia Water was now public, so no oversight required.

But in a quirky legal argument, CLWA says Valencia is still private at the same time, so it doesn’t have to have public board meetings or agendas or respond to California Public Records Act requests. CLWA claims that it doesn’t even have to show the public the Valencia Water Co. budget. Apparently Valencia Water Co. is public only when CLWA wants to raise its customers’ water rates.

But why is CLWA raising the rates for Valencia Water Co.? Since the acquisition, CLWA has collected $2.4 million from its Valencia Water customers in stock dividends. It is unheard of for a public agency to make a stock profit on another public water utility that it owns. It is also apparently making a profit on both of its retail agencies’ operations, which accrues to CLWA for other uses.

But here’s where the Enron accounting comes in. It appears CLWA is about $350 million in debt. However, it is pretty hard to figure out exactly how much debt CLWA really has and exactly what it is doing with its money. Not only does it own two water retailers (with dubious legal authority in one case); it also has incorporated a “CLWA Financing Corp.” and a joint powers authority (JPA) to make itself loans. There are plenty of inter-fund transfers, and the word “defeasance” (delaying debt so it doesn’t appear on the books) has showed up several times in recent agenda items.

Since no one can see the Valencia Water Co. budget, some of us are wondering, among other things: Where in the heck is that $20 million debt that was incurred in the 2012 takeover disclosed?

As CLWA now attempts to create a valleywide water monopoly by taking over Newhall County Water District, too, it is not surprising that many members of the public are demanding a forensic audit of this out-of-control-agency. I urge the state Legislative Audit Committee to listen to their requests.

[See related documents]

 

Lynne Plambeck is an elected member of the Newhall County Water District. Her opinions are her own.

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5 Comments

  1. waterwatcher says:

    Whew! The legislature should audit this agency. And I ask once again why any Board member on the Newhall Water Board would promote joining Castaic Lake Water Agency – what could they be thinking?

  2. Carl Boyer III says:

    To whom should one write asking for an audit?

  3. C. Harris says:

    Okay lets “demand a forensic audit of this out-of-control-agency…and urge the state Legislative Audit Committee to listen to …our… requests.”
    We must stop this right away. Also please ask the question, What are the individual Newhall Water Board members really getting out of proposed “take-over,” hum hum , a condo in Hawaii? Money in a secret fund? They will rat on each other and the public WILL find out.

  4. Mr. Val Verde says:

    All members of these affected boards should be publicly named. Then their friends and neighbors will understand where the money came from for all these people’s new cars, new work and furnishings for their homes. All their bank accounts should be looked at by the FBI and IRS. Why does the Calif legislature not provide for the enforcement? Could it be that they, themselves, are also guilty?

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