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PREFACE
This section reviews the history of the
development of the water rights at Lake Arrowhead and examines the involvement of the Lake Arrowhead Country Club, the Arrowhead
Lake Association ("ALA") and the Lake Arrowhead Community Services District ("LACSD"). This history can best be understood
if viewed as three definite phases:
* The Reservoir Years (1891-1924)
* The Resort Years (1924-1978)
*
The Conflict Years: Resort vs. Reservoir (1978 to present)
Since it is such a precious commodity, all water in California
is owned by the state as a trustee for its citizens. As a result, the state prescribes conditions and limitations on all
water suppliers which provide, among other things, that suppliers have only a right to use the water beneficially, reasonably
and without waste.
The history of Lake Arrowhead is the simple story of a series of holding companies which always
owned not only the lake and the surrounding "woods" properties, but also the water rights to the lake itself. To understand
the history and the competing interests for water at Lake Arrowhead requires understanding the history of the zealous entrepreneurial
development of this area. This development, in its haste, did not always completely deal with the necessary legal distinctions
or niceties and these shortcomings appear in a succession of grants and contracts reviewed below. In addition, at the end
of this analysis appears a "Historical Timeline" setting forth the year and a description of significant events throughout
the history of Lake Arrowhead.
THE RESERVOIR YEARS (1891-1924)
In 1891, a group of Ohio businessmen acquired
the area known as "Little Bear Valley" to construct a reservoir and supply irrigation water to the Southern California lowlands.
Led by James Morris Gamble of Proctor and Gamble, this group began construction of a dam at the east end of Little Bear Valley.
In 1905, the property was transferred from the Arrowhead Reservoir Company to the Arrowhead Reservoir and Power Company.
Unfortunately
for these developers, two court decisions, one in 1907 and the other in 1913 outlawed the sale of irrigation water outside
of its natural flow basin. This successfully put an end to James Gamble's designs to harness the mountain water for irrigation
of low land communities, but not before building the first dam and filling Little Bear Valley with water, a process that took
from 1915 to 1922.
It was also during this time (1914) that the state legislature enacted the California Water Code,
the purpose of which was to set up a method for governing the use and abuse of water in the state. One of the provisions
of this code was to invalidate all prior appropriations of water which either were not constantly used after 1914 or which
had changed since the original appropriation. Although the rights to Lake Arrowhead water had been to transfer it off the
mountain, ironically it had never included the right to use it locally or the right to store it in a reservoir. Thus, under
the provisions of the newly enacted Water Code, the designation of Lake Arrowhead as a reservoir was invalid.
This
has come back to haunt LACSD today.
The Erroneous Railroad Commission Approval
In 1924, J.B. Van Nuys and
John O'Melveny realized, as real estate developers, that the value in the Little Bear Valley and Little Bear Lake was not
the water in itself, but the land that might be sold to persons who could enjoy that water, both for use and recreation.
Thus, they formed the Arrowhead Lake Company ("ALC"), purchased the land surrounding the lake as well as the lake itself from
Mr. Gamble and embarked on the creation of a resort community by changing the name of the lake to Lake Arrowhead and the name
of the surrounding properties to Arrowhead Woods. Simultaneously, they created the Arrowhead Utility Company (as a wholly
owned subsidiary of ALC) and deeded it the right to withdraw water from the lake. Since the newly enacted Water Code had
invalidated Lake Arrowhead's designation as a reservoir, ALC was forced to have its rights re-affirmed.
Therefore,
ALC made an application to the Railroad Commission in 1924 for approval of the proposed transfer of the utility rights to
its newly created, wholly-owned utility company. Although approval from the State Engineer was required for expired water
rights applications, ALC chose instead to apply to the Railroad Commission for this affirmation.
The Railroad Commission
was unaware of the problems created by the Water Code and the invalidation of ALC's rights to withdraw water from the lake,
probably because it was the wrong agency to process such applications. In any event, it reaffirmed the right to withdraw
water from the lake, although it lacked the authority to do so.
The result: on March 14, 1924, the Railroad Commission
mistakenly approved an otherwise illegal transfer of these utility rights from the ALC to its utility company. However,
even this approval was conditioned on the utility company limiting its lake withdrawals to an amount of 2,200 gallons per
minute (the equivalent of 3,548.6 acre feet per year). This grant recognized the seasonal nature of the lake and sought to
limit withdrawals in order not to drain the lake below its capacity.
This grant ultimately created LACSD's right to
take water from Lake Arrowhead. The present complaint before the State Water Resources Control Board (filed by ALA, Ted Heyck
and P.L.A.N.) challenges LACSD's claim to water based on this illegal grant by the wrong agency.
The Fraudulent
Grant Deed
Two weeks later, on March 28, 1924 ALC made a cavalier and illegal move. With full knowledge that it had
the right to withdraw only 2,200 gallons per minute per the approval from the Railroad Commission, it delivered a grant deed
to its utility company which erroneously provided that the right to withdraw was 4,200 gallons per minute. This fraudulent
transfer was not difficult to accomplish since ALC owned the utility company; it was simply a quiet, inside deal.
This
4,200 gallon per minute right in the 1924 grant deed was expressed in three provisions which stated that water rights were
"transferred" in the following areas:
*100 gallons per minute each from Fleming Creek and from Orchard Creek for a
total of 200 gallons per minute
*2,000 gallons per minute from Lake Arrowhead at a point on the South shore approximately
3,000 feet north of and about 900 feet west of the SE Corner of Section 15
*2,000 gallons per minute at a point on
the North shore of Lake Arrowhead located approximately 1500 feet west of the NE corner of Section 15.
ALC was apparently
unhappy with the Railroad Commission's approval of only 2,200 gallons a minute and it simply created the fiction that the
utility company had a greater right to withdraw 4,200 gallons per minute. This fraudulent increase is also raised in the
current SWRCB complaint (referenced above).
The "Domestic Use" Limitation
In addition to the erroneous rate
of withdrawal, a second anomaly appears in this grant deed. It provides that the utility company had the right to draw water
for "domestic use" and for domestic use only. Neither the original application to the Railroad Commission nor the ensuing
order contained the "domestic use" limitation.
Furthermore, the minutes from the ALC meeting which authorized the
formation of the utility company and the application to the Railroad Commission for the transfer of water rights did not contain
any such limitation.
Over and over, the grant deed states, "...The right to take, for re-sale for domestic use, a
flow and/or volume of water... The right to take, for re-sale for domestic use, a flow and/or volume of water, not exceeding
100 gallons per minute... The right to take, for re-sale for domestic use out of said Lake Arrowhead, at a point approximately
3,000 feet..."
Did ALC decide to limit the transfer? If so, did it intend to retain the residual rights to transfer
all non-domestic water uses to the utility company at some later date? It hardly seems to their advantage to do that. Was
it a draftsman error? A review of the meticulous minutes that led to the application leave much doubt as to whether these
businessmen would have made such an error.
These facts, along with some filing inconsistencies at the recorder's office
and some out of place documents, support the belief that the grant deed was fraudulent. Many believe that the deed was created
and recorded at a later date in order to justify and/or allow a greater use of the water than was granted by the Railroad
Commission. However, the "domestic use" provision appears to be a ministerial error of some later draftsman who did not
realize the significance of the limitation.
The practical effect of the limitation, on its face, is to indicate that
the utility company never had the right to transfer any water to any non-domestic user until 1975. At that time, a quitclaim
deed from Boise Cascade (as ultimate successor to ALC following many intervening successors) transferred those residuary rights
to the utility company.
It may be that Boise realized the "domestic use" limitation when it was preparing to transfer
all of its interests and that this limitation needed to be cleared up. It may also be that this 1924 deed was in fact prepared
around the same time that Boise was attempting to wind down its business and that it was done to simply correct an error in
the original fraudulent deed.
The Effect of the Fraudulent Deed
Although the change of 2,200 gallons per
minute into a bogus 4,200 gallons per minute was illegal, in actuality its effect was minimal for many years. The typical
water usage in 1924 was vastly below 2,200 gallons per minute and barely reached that in the summer months. The Railroad
Commission probably expected that a 2,200 gallon per minute draw would not be constant and that annual usage would be far
less
Nonetheless, the grant does permit a constant draw of 2,200 gallons per minute for 365 days. Today, at the current
draw rate of 3,327 acre feet per year, LACSD's average constant draw, on an annual basis, is 2,062 gallons per minute. This
draw is within the allotment of 2,200 gallons per minute (the equivalent of 3,548 acre feet per year).
However, the
grant does not provide that the 2,200 gallon per minute limit should be an average; instead, it simply provides a maximum
rate which cannot be exceeded. Thus, it could be viewed that LACSD is violating the law whenever it exceeds the 2,200 gallon
per minute limit. Further, by so doing, LACSD subjects the lake to unnecessary and illegal fluctuations, thereby jeopardizing
the constant level potential of the lake. Therefore, when LACSD draws at its peak of 3,000 to 5,000 gallons per minute during
the summer months, it exceeds the maximum grant and in turn, causes greater short-term fluctuations in the lake's levels within
the overall long-term decline.
Perhaps the state should consider modifying the original grant of 2,200 gallons per
minute in addition to LACSD's excessive draw from time to time. Given the conditions during the last four years, a draw of
2,200 gallons per minute (3,548 acre feet per year) appears to be well in excess of the lake's capacity today. It is likely
that the Railroad Commission never thought that their grant of 2,200 gallons per minute would be a 365-day constant.
The
best opinions today estimate the lake's capacity to be between 1,500 and 2,000 acre feet per year, the equivalent of between
930 and 1,240 gallons per minute. Thus, the Railroad Commission overrated the lake's capacity when it ordered a maximum
of 2,200 gallons per minute in 1924, a fact which was not evident until the population increase raised the demand upon the
lake.
Thus ended the Reservoir Years. The lake, as a viable reservoir, was pre-empted, terminated, over.
THE
RESORT YEARS (1924-1978)
Both Gamble's venture of using the lake as a reservoir and ALC's venture of developing a resort
had one simple thing in common: a total management concept in which both the property as well as the utility company were
owned by one single entity. The lake and the water within it were controlled by the same dominant management which could
direct all towards a common purpose: the development and maintenance of a resort. The lake had no meaning except to be sold
as the basis of a resort and generate sales from residents down the mountain. Similarly, a resort was impossible without
the lake, since the lake provided the means to sell and maintain high value real estate.
This simple but effective
total management effectuated the great growth period in Lake Arrowhead from 1924 to 1978, known as the Golden Years. In
fact, during the stewardship of Mr. Van Nuys and Mr. O'Melveny, ALC subdivided 20% of Arrowhead Woods. It also withstood
multiple transfers of ownership: from ALC to the Turf Club; then to the Arrowhead Development Company; then to Boise Cascade;
then back to the Arrowhead Development Company; and then back to Boise Cascade.
The utility company, in turn, almost
failed at the end of World War II, thus prompting the purchase of it, the lake and unsold "woods" by the Turf Club. The
utility company imposed only two rate increases in its history, both engendered by the financial stress of (1) the depression
and the war (1946) and (2) the necessity to upgrade filtration systems at the demand of the California Health Department (1965).
The
1964 Homeowner's Revolt
In 1960, ALC and its utility company were sold to the Lake Arrowhead Development Company.
Four years later, The Arrowhead Woods Property Owners Association sued the Development Company to establish the rights of
the homeowners vis a vis using the lake and possessing docks (called "slips").
The lawsuit was settled and the parties
entered into an agreement called the "Agreement of Settlement and Compromise". Referred to locally as simply "the Agreement",
it is a contract whose primary purpose was to establish boating, fishing and swimming rights on the lake, as well as building
docks and harboring boats (including quantities), all for Arrowhead Woods property owners. In short, the Agreement established
all of the lake operations as we now know them; in fact, today's ALA is the successor to the rights and duties of the plaintiff
homeowners.
When the Agreement was created, the Development Company (as successor to ALC) owned the utility company
which distributed water under the illegal 1924 grant from the Railroad Commission. Unfortunately, nowhere in the Agreement
does it (1) address the consumption of lake water, (2) set a rate for the use of the water, (3) state how the water is to
be drawn from the lake or (4) specify whether the supplied water was to be treated or untreated. Notwithstanding, there is
a single "emergency level" clause which provides that at 5,100 feet above sea level, the Development Company must cease all
non-domestic consumption of the water. The exception: the Development Company "may" transfer up to 250 acre feet to the
country club.
This was clearly a "sweetheart" deal for the country club. However, its inclusion also reflects that
the signatories, their successors and assigns had the power to decide issues relative to who was entitled to receive water
from the lake, and under what circumstances a customer could be included or cut off. The acknowledgment of this power in
the 1964 Agreement is crucial to today's management of the lake.
The 1975 Sale From Boise Cascade to ALA
The
transition of the lake's development from a resort to the conflicted management of a resort or reservoir lies in the hopeful,
well-intentioned but ill-fated transition that took place between 1975 and 1978. During this time, Boise Cascade (the single
purpose holding company) granted ownership of the lake and certain unsold parcels to the ALA (1975) and then separately sold
the control of the water rights for the lake to LACSD (1978).
Boise Cascade had been searching for someone to purchase
its interests for several years, and for good reason. It had been forced to take its interests back several years previously
when the Development Company was threatened with bankruptcy. The federal government had further ordered Boise Cascade to
divest itself of its various monopolistic holdings. Finally, it had been ordered by the state of California to replace the
dam which was believed to be in danger of collapsing with the advent of an earthquake.
Under the leadership of Ralph
Wagner and others, the Arrowhead Lake Association was formed and purchased Lake Arrowhead, Grass Valley Lake, the Burnt Mill
Beach Club and the Tavern Bay Beach Club for $450,000. Since the community of Arrowhead Woods assumed the burden of building
a $7 million dam (accomplished through a successful bond initiative), Boise Cascade was relieved.
Although the utility
company was excluded from the 1975 transaction, ALA did obtain a right of first refusal to buy it at a later time. Unfortunately,
ALA was not able to raise the necessary financing and, in 1978, lost its chance to purchase the utility company.
The
1978 Sale From Boise Cascade to LACSD
The sale of the utility company is memorialized in a document entitled "Agreement
For The Purchase And Sale of Assets Of Arrowhead Utility Company" between Boise Cascade, the utility company and a new entity
named the Lake Arrowhead Community Services District. Formed in March, 1978, LACSD was created in good faith and with the
best intentions by a few of the local citizens as a government entity to take over the water distribution function at the
lake. On August 21, 1978, the sale was finalized and seemed to represent the best of all possible worlds, since LACSD was
a public entity and therefore believed to be a fair and responsive community public enterprise.
Curiously, an exhibit
to the 1975 ALA-Boise Cascade sales agreement is a quitclaim from Boise Cascade to the utility company of a perpetual right
to extract water from Lake Arrowhead. It is strange that this appears as an exhibit to this transaction since the utility
company was not part of the deal; perhaps it was included to substantiate the right of first refusal which ALA was given.
What
is even more curious is that those water rights had already been given to the utility company in 1924 from the Arrowhead Lake
Company (along with the bogus right to draw an additional 2,000 gallons per minute). As such, Boise Cascade never had any
water rights to grant to the utility company. The grant stated that Boise Cascade quitclaimed to the utility company the
same interests enumerated under the previous (illegal) grant, plus all "amounts of water to serve all present and future municipal
irrigation, recreation, fire protection, and other demands made within the certified service area." In short: the entire
contents of the lake.
The apparent purpose of this grant was to manufacture additional documentation to bolster the
claim that the utility company had (1) a 4,200 gallon per minute grant rather than a 2,200 gallon per minute grant, and (2)
an additional unlimited perpetual grant of water. Thus, the grant created a paper trail from which the utility company could
claim it had an unlimited right to draw water from Lake Arrowhead. Boise was eager to sell its interest in the utility company
and creating a deed which implied a right to drain the lake dry could only bolster its price.
A quitclaim deed is a
document in which the seller says, "I don't know or warrant that I have any property interest, but if I do have it, then you
get it. However, no warranty goes with it. You have what I have, but at your own risk". Conversely, a grant deed says "I,
the seller, warrant and represent to you that I own this property. You can rely on this representation; if it's not true,
then you can sue me." Obviously, a grant deed is a much stronger type of transfer since it carries heavier legal weight than
a quitclaim deed.
The fact that Boise Cascade used a quitclaim deed rather than a grant deed shows that they did not
believe that they had any interests in the water whatsoever; and in fact they didn't. Instead, those rights had been granted
to the utility company 51 years earlier (in 1924) from the Arrowhead Lake Company. This arrangement is tantamount to a person
arranging for his next door neighbor to issue to him a quitclaim deed for the Brooklyn Bridge. The deed is legal until it
is used by the recipient to mislead other persons into believing that he actually owns Brooklyn Bridge.
However, LACSD
relies on these two documents (the 1924 grant of 4,200 gallons per minute and the 1975 Boise Cascade quitclaim deed) to support
its claim that it has permission to draw in excess of 2,200 gallons per minute from Lake Arrowhead. Currently, LACSD draws
between 3,000 and 5,000 gallons per minute during peak periods.
The 1978 Transfer of the Lake Arrowhead Country
Club
At the time of the sale of the utility company to LACSD, Boise Cascade and some remnants of the Development Company
owned both the utility company and the Lake Arrowhead Country Club. In September of 1978, the Development Company finally
turned over the country club to its membership.
Again, as in the other contracts, the controlling force here was a
single entity, ostensibly Boise Cascade, with some remnants of the Development Company, owning the lake, the land around the
lake, the utility company and the country club. However, since the lake and the land around the lake was transferred to ALA
in 1975, and with the 1978 Boise Cascade-LACSD transaction and the conversion of the country club two weeks later (after having
provided for its development and protection for approximately 30 years), the Development Company and Boise Cascade had divested
themselves of all major ownership rights in the Lake Arrowhead area.
In doing so, however, the country club was granted
a last perk as reflected in paragraph 20 of the 1978 Boise Cascade-LACSD ageement. That paragraph provides that the rate
in 1978 for providing water to the country club was $75 per acre foot, or $.17 per 100 cubic feet. It further provides that
the rate for the country club shall always remain in the same proportion (or less) as the rates charged for domestic users.
In 1978, domestic users were charged $1.85 per cubic foot.
In other words, the country club's rate could only go
up if the rate for domestic users went up in the same proportion -- thus attempting to lock LASCD into giving the country
club a rate that would always be at least 92% less than the domestic users rate. Thus, if the country club's rate of $0.17
per 100 cubic feet increased by 100% to $0.34 per 100 cubic feet, then the domestic rate charged other customers must similarly
increase from $1.85 per 100 cubic feet to $3.90 per 100 cubic feet. By tying its rate to the domestic rate at a fractional
percentage, the country club (in an unrelated sales contract) was granted a 92% discount in perpetuity. Actually, the country
club's water rate has never increased since 1965, even though the domestic rates have almost doubled.
This provision
in the 1978 Boise Cascade-LACSD contract that seeks to tie the country club rates with domestic rates is in all probability
illegal. The rate that the country club pays is so below the domestic rate that it is unfair, at best, and could possibly
be deemed a fraudulent deal by a court of law.
THE CONFLICT YEARS: RESORT OR RESERVOIR (1978 TO PRESENT)
Thus,
in 1978, the management of the lake shifted from a single entity (Boise Cascade) to 2 entities (ALA and LACSD). Public spirits
were high. For the first time, as Stan Bellamy says in "My Mountain, My People Arrowhead", a famous local history, "Lake Arrowhead,
then, became the property of the people of Arrowhead Woods and remains their private property." Published first in 1992
and republished in 1998, it remains the standard communal history of the area. Unfortunately, Mr. Bellamy was overly optimistic.
Buried in the seeds of this new management structure was the destruction of a unified developmental force governing
the lake. No longer would the lake be subject to the immediate demands of a holding company which could quickly ensure that
it was operated to the benefit of the development of real estate. Instead, two separate entities were established, both political
in nature, one private and one public and neither controlled by anything other than public opinion through their respective
Boards.
Without strong contractual checks and balances, these two entities were left to take charge of what they perceived
to be their respective duties: the sale of water and the monitoring of recreational activities. Lost in that separation was
an overriding controlling force always exerted by a holding company to ensure that the lake and its water levels were always
run for the benefit of the real estate surrounding the lake.
The story today of the decline of the lake is the story
of a kind of sibling rivalry and lack of coordination that has gone on between the ALA and the LACSD. Also, a kind of arrogance
exists from the LACSD that has led one of its board to state "we can drain that whole lake if we want to and no one can stop
us. Let 'em try!"
Can you imagine an official from any of the previous holding companies (the Arrowhead Lake Company,
the Development Co., the Turf Club or even Boise Cascade) saying this? This statement is an example of how far adrift the
objectives of the LACSD have drifted from the support of real estate values. To resolve this sibling conflict and to move
forward, will require that the public become involved and stop the conflict. Rules must be established and contracts created
which mandate cooperation between LACSD and ALA for the common good of the property owners. The water in the lake must be
preserved for the local community.
The ultimate irony is that between 1975 and 1978, ALA had a right of first refusal
to purchase the utility company from Boise Cascade. ALA would have retained the management of the lake, the water within
it and the common properties under one roof. Unfortunately, financial constraints precluded ALA from doing so. So far, this
decision has caused an ill-fated result.
The Current Implications of the 1964, 1975 and 1978 Contracts
Boise
Cascade and/or the Development Company, wearing multiple hats, were instrumental in inserting provisions into various documents.
For example, they sought to guarantee the country club a perpetual 92% discount on its water rates and a right to take water
from the lake at a rate of up to 250 acre feet per year. However, a review of the various documents reveals that securing
a favored status for the country club was an incomplete process. Much of the favoritism was taken for granted and not clearly
guaranteed on paper.
For example, I have not seen any documents which obligate LASCD to supply the country club with
untreated water from the lake. The 1964 Agreement states that the utility company may grant up to 250 acre feet to the country
club when the lake is low, but does not have to. The 1978 Boise Cascade-LACSD contract states that the country clubˇ¦s water
rates will be 92% less than the rates charged to domestic customers for water delivered from the Bernina Divide Filter Plant.
LACSD,
as the ultimate successor in interest to the Development Company in the 1964 Agreement, can make the decision to cut off the
water supply to all non-domestic users once the lake level falls below 5,100 feet. LACSD today claims that since "domestic"
use includes all residential, commercial, institutional and industrial use, it can only cut off water to the country club
as a "non-domestic" user. This is a remarkable stretch of the meaning of the word "domestic" and effectively renders the
cut off provisions in the 1964 Agreement meaningless. This convenient interpretation further suits LACSD's needs since the
country club (as the only "non-domestic" user) can be excluded from being "cut off" under the 1964 Agreement up to 250 acre
feet. Although LACSD could use its power as a bargaining tool to implement a fair market rate structure, such a move would
require that LACSD take the unusual step of acting against the benefit of the country club.
Since Boise Cascade sold
all its interests in the lake and the consumption of its water between 1964 and 1978, all rights and duties to enforce the
1964 Agreement governing those issues have passed to ALA and LACSD. ALA has both the authority and the obligation to control
the use of the water in the lake both as a reservoir and a recreation site. This is clear under the 1964 Agreement. ALA could
modify the terms and totally eliminate the country club's use of the water, certainly with and possibly without the consent
of LACSD. Furthermore, ALA has always been in the position of rallying community support and convincing the newspapers to
print the truth rather than stories, or letters from old-timers, about past droughts. Such stories and letters have done
nothing but perpetuate myths. However, ALA has been sadly slow in responding to the situation.
For example, at the
ALA 26th annual meeting held July 20, 2002, the questions asked by the members and the milk toast responses from the board
members reflect this complacency. The three excerpts below taken from the minutes speak for themselves:
Richard Byrne:
Mr. Byrne asked if the Association foresees any class action regarding docks on mud? Mr. Shore stated the low lake level
condition is not the fault of the ALA. He indicated ALA is looking at alternatives.
Cheryl Wegge: Ms. Wegge asked if
ALA has any leverage with LACSD with taking water for new construction. Can ALA propose a moratorium on construction? Mr.
Shore answered ALA does not have the power or leverage to impose a moratorium. Ms. Wegge's questions would be better addressed
to LACSD and that ALA is not a government agency.
Bill Roberts: Mr. Roberts inquired does the ALA Board have legal
fiduciary responsibility to the members to develop a solution to the low lake problem? Mr. Shore stated ALA is looking very
carefully at not only the practical solution but also the legalities. Mr. Shore has not rendered an opinion to the Board.
ALA is presently classified as a recreational club.
In my opinion and contrary to what you read above, both ALA and
LACSD together have the total ability and power to modify the 1964 Agreement at will. They further control the lake's recreational
and reservoir use, with or without the approval of the country club, so long as such use is consistent with local, state and
federal laws. Under the 1964 Agreement, ALA has always had more responsibility and power than to just monitor recreational
use of the lake. Unfortunately, it has consistently not used this power.
To refute my opinion, those who want the
country club's discount say "a contract's a contract". Presumably this phrase is intended to mean that the country club
has a permanent contractual right to discounted water from the lake. However, the only contract which purports to set these
rates is the 1978 Boise Cascade-LACSD contract, which sets a maximum rate equal to 92% of domestic rates for water delivered
to the Bernina Divide Filter Plant. The 1964 Agreement limits water taken from the lake, at LASCD's discretion, up to 250
acre feet when the lake is at an "emergency level" of less than 5,100 feet above sea level.
LACSD has not located
any other contracts which regulate the country club's use of or charges for water. As such, without some other contract to
the contrary (1) the country club could be legally cut off due to the lake's level, until the lake regains a level over 5,100
ft above sea level; (2) the 1964 Agreement could be changed by LASCD and ALA; and (3) the price set per acre foot under the
1978 Boise Cascade-LACSD agreement as 92% of the domestic rate is probably illegal as unconscionable. Unless there is some
other document which can be produced by the country club (or anyone else), all documents thus far indicate that there is probably
nothing, other than political influence, presently compelling LACSD and ALA to continue with the present water tradition with
the country club.
The Current Rights of the Lake Arrowhead Country Club
Many of the old practices, such
as subsidizing a private country club at public expense by perpetuating a 92% discount in their water rates, should and must
stop. In addition, the lack of enforcement of conservation mandates against the country club must also stop. Remember, the
country club's use during the summer is 1,200 times greater than the amount of water used by the average homeowner. Yet none
of the conservation "mandates" are enforced against them.
It is no longer necessary to underwrite the country club
at the public's expense. When the previous holding companies owned the club and paid its water bills to their wholly owned
utility company, nobody was damaged. Remember, since the holding company also owned the lake and the real estate surrounding
it, care was taken to ensure that the lake remained full in order to support real estate values. Now, those days have passed
and this favoritism, which has outlived its purpose, should be changed.
Further, there is no strict contractual authority
which supports the obligation to perpetuate these enormous discounts. When requested under the California Freedom of Information
Act, LACSD was unable to supply any contract between the country club and any previous utility provider setting out its rates
and the terms of delivery, with the exception to the reference in the 1978 Boise Cascade-LACSD contract. This leaves the
country club on unsteady ground since this is not a contract between LACSD and the country club. The fact is, there is
no such contract and none can be produced by LACSD (see memo from Ms. McGonigle of LACSD under the "Documents" page).
The
question however should be asked, "is the provision for special discounted rates found in the 1978 Boise Cascade-LASCD contract
enforceable by the country club?" The answer is, "probably not." Granted, the country club is a third party beneficiary
to the contract and has, on its face, an enforceable right. However, the discount is so excessive and involves a state-protected
precious commodity, that in all probability, a court would probably not enforce the provision and find it void as against
public policy.
A court could hold that selling the water at such a low rate is virtually giving it away, is a fraud
perpetrated on the community and, as such, is unconscionable. Given the fact that it is being done by a public entity whose
purpose is to serve the entire community, it becomes doubly repugnant. LACSD, as a public entity, has a duty to contest the
enforceability of these contract terms, not protect them, since they are clearly out of line with today's rates and involve
a precious and protected commodity. Further, the terms of a contract may be declared illegal, void and/or unenforceable
if times change such as to make the contract term unconscionable. The law supports this conclusion even if the terms were
legal when entered into.
To summarize regarding the country club: raw water is being pumped from Lake Arrowhead to
Grass Valley Lake while the water level is below 5,100 feet above sea level under an exclusion in the 1964 Agreement. ALA
and LACSD are enforcing this exclusion, which says that water may be pumped out of Lake Arrowhead to the country club, although
LACSD has the right not to pump it when the lake is low. The 1978 Boise Cascade-LACSD agreement grants a right in perpetuity
for the country club to have a rate 92% less than domestic users for water drawn from "Grass Valley Lake".
I have not
seen, and LACSD says it does not possess (I have asked them a second time to make sure), any written contract (1) stating
that the country club has a right, for any term of time, to receive untreated water pumped from Lake Arrowhead to Grass Valley
Lake and/or (2) setting a rate, for any term of time, between the country club and any other entity, other than the reference
in the 1978 Boise Cascade-LACSD asset purchase agreement
If anyone can provide me with any of this documentation, it
would be greatly appreciated. Otherwise, the country club's claim to guaranteed untreated water from Lake Arrowhead at a discount
rate is tenuous at best and may reside only in tradition and oral agreements, both of which may be void under the Statute
of Frauds.
A Visit to the Lake Arrowhead Country Club
I have provided an icon below for those persons who have
never visited the country club's lush rolling greens and Grass Valley Lake filled to the brim with piped Lake Arrowhead water.
This icon will take the visitor to the Country Club's website which is a virtual tour of this private club which boasts on
its website (their words, not mine) that it is "a place where bald eagles glide over fairways shouldered by towering sugar
pines and incense cedars. Where you can stop and listen to the cool winds in the lofty trees, the lapping of clear water,
the superb silence of serenity".
While you are on the website be sure to visit the "Aquatics" page. No shortage of
water there. In fact, morning golfers repeatedly complain to the country club's administration that the greens are "marshy".
Part
of the website contains a map for the more adventuresome who might like to visit in order to see what abundant cheap water
can do. I do encourage a Sunday drive. It is ten minutes from Blue Jay. Be careful not to enter the premises, since it is
a private club. Go to the link for the country club's website below.
LACSD's Obligations to the Public
Under
the 1964 Agreement, LACSD has always possessed both the authority and the obligation to monitor and utilize the lake for the
benefit of the entire community. It further has with the right to take, for consumption only, a portion of the water in the
lake: 2,200 gallons per minute. Per its contractual authority and obligations, LACSD does assiduously monitor the lake.
However, LACSD is also failing to preserve the lake, is misusing water in excess of the state grant and is continuing to sell
large quantities of water to the country club at a grossly discounted price. All of these have resulted in the devastation
of a prized recreation site and government-approved reservoir. This neglect could subject the board to liability.
Since
LACSD is a public entity and is ultimately controlled by the public through the election of its board of directors, public
opinion will ultimately prevail there.
HISTORICAL TIMELINE
1891: The Arrowhead Reservoir Company
("ARC") formed by James Gamble (of Proctor and Gamble) and others. ARC buys property in and around Little Bear Valley and
begins dam construction at east end, now State Highway 173, and a series of tunnels to capture and transport water off the
mountain to low lands and turn area into a reservoir
1905: ARC transfers property to a subsidiary, the Arrowhead
Reservoir and Power Company, which distributes both water and electric power
1907: Dam is partially completed; Arrowhead
Reservoir and Power Company allows natural waters supplied through tunnels to fill dammed off area known as Little Bear Valley.
1911-1913:
A series of court decisions culminate making it illegal to transfer water out of the area, thus defeating original purpose
of the dam and making it financially impractical to service local residents, since not enough demand.
1921: Arrowhead
Reservoir and Power Co. ceases operations due to court decisions banning transfer of water out of the area. At that time,
Arrowhead Reservoir and Power company had less than 100 electric and water connections. J. B. Van Nuys and John O'Melveny
form the Arrowhead Lake Company ("ALC") and purchase Arrowhead Reservoir Co (including the Arrowhead Reservoir and Power Company).
Area renamed "Lake Arrowhead" and "Arrowhead Woods". These developers envision a resort community which would draw the affluent
from the lowlands to the mountains. The community would coincidentally use lake water because that was the only water available
and it was readily and cheaply accessible. Income of the developers would come from land sales, not water sales.
1923:
ALC forms Arrowhead Utility Co.
1924: According to Railroad Commission findings, Arrowhead Reservoir and Power Co
had approximately 98 electric customers and 84 water users. Railroad Commission grants ALC permission to transfer to AUC 2,200
gallons per minute of water from Lake Arrowhead, Fleming and Orchard Creeks for use in certified area. No distinction made
between domestic and non domestic use. Deed on file with county indicates that ALC transfers beyond its powers a total of
4,200 gallons per minute of water for domestic use and electric rights from its other subsidiaries to Arrowhead Utility Co.
This March 1924 deed is probably a bogus deed, later substituted by the Arrowhead Utility Co. possibly during the 60's. The
fact that the deed is without authority is confirmed by a subsequent revised decision of the Railrroad Commission in July,
1924 (four months after the date of the deed) wherein the follow-up decision reiterates that the Commission granted only 2,200
gallons per minute. Curiously non domestic use is not transferred and remains with ALC. 9-hole golf course is built next
to Grass Valley Lake.
1946: ALC falls into post-war receivership and sells 9-hole golf course, land around and under
lake along with Arrowhead Utility Co. (which holds rights to water in lake) to Turf Club. Small 9-hole golf course is continued
in use. Public Utilities Commission grants first rate increase to AUC. From 1946 to 1960 Turf Club made many water improvements
in the transmission lines.
1960: In October of 1960, Jules Berman, William Newell and Joe D. Brown form the Lake Arrowhead
Development Company and acquire Lake Arrowhead, the Arrowhead Utility Co and purchased the remaining unsold properties in
Arrowhead Woods plus an additional 120 acres on the western boundary known as the Dexter property which was subsequently included
in the Arrowhead Woods and the "certified" area. Present 18-hole golf course and club house built on the site of the old
9-hole golf course. Due to State water quality requirements over the next 5 years, 2 processing plants are planned, one
of which was built in 1965 near Emerald Bay, now called the Cedar Glen Filter Plant. Under LADC's ownership, a major water
system improvement program is implemented, upgrading AUC's water supply intake, treatment transmission, storage and distribution
facilities.
1967: Boise Cascade merges with Lake Arrowhead Development Co.
1964: Homeowners revolt and demand
to have clearly designated lake rights, resulting in settlement between Lake Arrowhead Development Co, Mutual Service Co and
Arrowhead Property owners Association establishing dock rights, swimming and boating . Coincidentally sets up 5,100 feet
above sea level as crisis level for lake below which water utility is barred from withdrawing water for everyone but country
club who may withdraw 250 acre feet per year.
1970: Water consumption reaches 80% of processing capacity and therefore
second previously planned plant construction initiated.
1971: Lake Arrowhead Development Company buys back interests
from Boise Cascade. The second processing plant was put on line near the Bernina Divide Reservoir
1973: Lake Arrowhead
Development Company declares bankruptcy and Boise buys back the interests it sold to LADC in order to protect its investments.
In the same year, the state of California demands that the dam be seismically upgraded.
1974: A $7 million bond issue
is passed by the electorate in November by a 9 to 1 margin for construction of a new dam under the auspices of County Service
Area TO D-1.
1975: Boise under pressure from federal government to divest its nationwide monopolistic holdings and
invest $7 million in a new dam (previous to passage of bond issue) sells out interests to newly formed Arrowhead Lake Association,
but retains Arrowhead Utility Co. Grants ALA right of first refusal to buy it for $3,895,000. (A deed from Dam Co. and Boise
is attached as an exhibit showing that Dam Co and Boise quitclaimed rights in all of water in lake for all purposes to Arrowhead
Utility Co -- irony is neither had that amount of rights, possibly had non-domestic rights never conveyed in 1924 by ALC to
AUC rights). A construction contract is awarded for the new dam.
1978: ALA does not exercise its right to purchase
Arrowhead Utility Company. LACSD is formed by the local electorate for this purpose and to assume its water distribution
responsibilities. Purchase paid for in part by the issuance of bonds. LACSD acknowledges LACC is paying 8 % of the going
domestic rate for water and promises to AUC as part of the sale to keep LACC's rates at that ratio in perpetuity.
1978
to Present: LACSD and ALA divide their actions vis a vis the lake into two functions: ALA acts as policing agency monitoring
swimming, boating, dock improvements, speeding, boat races, occasional parties, social events and cleaning up portions of
lake weed while LACSD sells as much water as it can from lake. Both lose not only the motivation to promote the resort community
through the maintenance of the Lake, but also form a competitive stance and refuse to cooperate in any common goal....much
less a common goal of fostering the resort.
LACSD drifts so far off the original developers' course of action that
a member of its board is heard to state defiantly, on several occasions, words in substance that ... "we will drain the lake
dry if we want to...let 'em try to stop us". Another member of its board at a meeting of October 10, 2002 after two hours
of debate and discussion amongst the audience, Gary Valladeo and Dennis Whitney, on how to solve the problem, and after having
said absolutely nothing for two hours, spoke up and stated, in substance: "I don't talk much but my opinion is (to save the
lake) don't flush yellow water".
Two of five votes on the Board. And so it goes.
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