The Santa Clarita Valley Water Agency changed course Tuesday, deciding that millions of dollars in “contributed capital” built by a developer would be considered in the retail fee set for its expanding Valencia customer base.
The decision represents an estimated reduction in cost of about $3.25 million for The Newhall Land and Farming Co., a subsidiary of Five Point Holdings, which could make about 20,000 connections in the area for SCV Water.
Water officials and an independent ratepayer advocate, who both initially supported not including the developer’s contributions to the existing infrastructure in the rate fee, took time for “additional talks” after receiving a demand letter from the developer June 6.
The 7-0 vote Tuesday by the water board ends the monthslong dispute and litigation threat between SCV Water and The Newhall Land and Farming Co., after Newhall Land sent a letter hours before the summertime meeting when SCV Water was expected to set developer fees for the region.
SCV Water took up an 80-minute discussion of the fee question in June, but the issue of resolving the connection fee comes from the legislation that created SCV Water formally in January 2018.
The law, Senate Bill 634, authored by state Sen. Scott Wilk, R-Santa Clarita, consolidated four local water agencies into Castaic Lake Water Agency and created SCV Water. The CLWA also absorbed Valencia Water Co., which up to that point, had served about 31,350 connections for CLWA in the Valencia Retail Area, a number that’s since grown.
The bill notes a few important provisos for the handling of the old water agencies, specifically Valencia Water Co.
The first indicated the debt transfers and assessments were to be completed by 2018. It also states: “if Valencia Water Co. or any other retail water supplier is integrated into the agency, the indebtedness of the retail water supplier that exists immediately before the integration shall be borne by the customers in the area”; and “(SCV Water) may treat the retail divisions as a single unit for purposes of operations and expenses to the extent that it is economically beneficial for the operations of the agency as a whole, but as long as any pre-existing indebtedness of a retail division remains outstanding, that indebtedness shall continue to be allocated to that retail division and paid from that retail division’s rates and charges.”
The 2018 deadline wasn’t met.
In a previous interview, SCV Water General Manager Matt Stone didn’t give a specific reason why Valencia Water was the last district reassessed for its rates, but said the need to conduct a number of rate studies after the water agencies combined resulted in the delays.
Newhall Land’s letter states the rate study conducted in or around 2021 to justify the fee to the board was flawed, because “the agency is recovering the cost of the roughly $73.8 million purchase price for the water system infrastructure through its water rates,” referring to the purchase price Newhall Land sold for the existing Valencia Water Co. infrastructure it bought in 2012 to CLWA when it first absorbed the agency.
Five Point believes “the proposed capacity fee was calculated using a flawed and legally questionable methodology that did not account for the tens of millions of dollars’ worth of facilities that Newhall contributed to this agency’s predecessor,” Sandy Sanchez, vice president of Five Point Holdings, told the board in June.
“Respectfully, we do not believe this board has all the information necessary in order to make an informed and prudent decision,” she told the water board during the discussion in June.
A letter sent from Five Point cites state laws regarding how an agency must prove the cost of service to recover fees for that service.
The original fee was expected to cost $25 million for Newhall Land to “buy in” to a system it already helped pay for, according to the letter from the developer. The water agency’s new ask is expected to generate $21.75 million for SCV Water in developer fees over the course of the remaining buildout for the area. The total cost to the agency is $49 million, according to water officials.
Kevin Strauss, spokesman for SCV Water, wrote Tuesday ahead of the discussion, “SCV Water has considered input from stakeholders and taken time to ensure that any fee established is fair and equitable for current customers and those who we serve in the future.”
The final difference in the fee adjustment approved was a little over $140 each for the most standard-sized 1-inch connection; however, the amounts add up when the calculations account for tens of thousands of customers.
SCV Water Agency board member Maria Gutzeit also said it was important to remember that the fee schedules are reevaluated every few years and the situation can also be taken into consideration for SCV Water’s upcoming update of its master plan, which is also on the board’s agenda. The board has also discussed a standardization of the rates paid by local customers.
Per the law that created the agency, the debts borne by each of the service areas would need to be addressed first.
“The ratepayer advocate thought it was fair, as did the person who did the rate study,” Gutzeit said, “so I think the bottom line is this brings in more money for capital for our existing Valencia customers, which I think is a win.”