Settlement Reached With Water Firm Accused of Overspending

State utility officials, who had recommended that the Santa Clarita Water Co. be forced to cut prices 20% to compensate customers for overspending, said Friday they are ready to accept a deal that would allow the company to slightly raise prices instead.

The settlement by the Public Utilities Commission, which would allow the company to raise rates 1%, is still subject to approval by an administrative law judge hearing the case.

But that approval is expected to be routine when the judge convenes a hearing on the case Tuesday in Los Angeles, a PUC spokesman said.

The company serves 20,000 customers in Saugus and Canyon Country.

The PUC’s Office of Ratepayer Advocates (ORA) had earlier accused the company of squandering money on high pay, luxury cars for its executives, and phantom employees who collected salaries but lived outside the area and were rarely in its offices.

The ORA proposed that PUC directors, who supervise privately owned utilities in the state, ask the judge to order the water company to reduce its rates for several years to make up for past overspending.

Friday, however, ORA supervisor Daniel Paige said his office had agreed to a compromise that calls for no rate cuts, but the company would not get the 29% rate increase it had sought.

Paige said the ORA settled because of worries the judge would not go along with the price cut, the largest the ORA had ever requested.

“You settle because you think there’s a chance you’re not going to win,” Paige said.

Paige said his office accepted the company’s argument that it needs money to meet higher water and electrical costs, improve its water quality and cover damages to its facilities caused by the 1994 Northridge earthquake.

Both sides agreed, Paige said, that the water company would cut some of its expenditures, including the purchase of luxury cars and high salaries for its officers, and eliminate the four “absentee employee” positions.

The water company also agreed to accept a reduction in its authorized profit level, from the current 13% to 10%, Paige said. Since 1983, the company has recorded earnings as high as 23% and never less than 14%.

The water company filed a request last summer to raise prices shortly after 61 of its customers filed a complaint with the PUC that they were being overcharged.

“I agreed with the initial report by the ORA and I’m disappointed,” Warren Johnson, a spokesman for the customer group, said Friday when asked about the proposed settlement. “I believe the water company has built up a big case for its expenses and managed to convince the [ORA].”

The settlement, if approved, will also allow the company to buy 45% of its water from the Castaic Lake Water Agency. The agency, a state government body that provides water to four water companies in the Santa Clarita area, sells higher quality river water. Otherwise, the company must use lower quality well water, which has a high mineral content that leaves spots on dishes and car windows and clogs plumbing.

“We believe the increase will give them a better water quality,” Paige said. “They presented a good case about the need for a higher quality water.”

Robert Sagehorn, director of the Castaic agency, had written to the PUC saying any reduction in the amount of its water that the Santa Clarita company was allowed to buy would lead to poor water quality for that company’s customers and higher prices for consumers throughout the area.

Because the company is the agency’s biggest customer, any cut in the amount of water it purchases would reduce the agency’s income, which would have to be made up by raising water prices for all its customers, Sagehorn said.