DIABLO GRANDE -- Diablo Grande's financial troubles continued this week when the company that runs the community's water treatment plant threatened to terminate the contract because bills weren't paid.
Veolia Water North Amer-ica charged in a letter Monday that the Western Hills Water District owes the company money and said it would cancel the agreement March 1 if the issue wasn't resolved.
Western Hills supplies water to the luxury resort, and the district essentially is managed by Diablo Grande officials. Veolia's letter is a concern to county and state health officials who want to ensure that residents con- tinue to have safe drinking water.
If Veolia were to pull out next month, Western Hills would have to quickly make arrangements for someone else to operate the treatment system.
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Charles Voltz, president of Veolia's western division, said Wednesday the company appeared to be closer to resolving the matter with Western Hills.
"We were advised this week that things were pretty close and it should be buttoned up by Friday," he said.
Voltz said he didn't know how much Western Hills owes the company, but said it was in the neighborhood of $3 million. Western Hills hasn't paid outstanding debt from construction of a 400,000-gallon-per-day filtration system that treats water drawn from the California Aqueduct, he said.
Veolia, which has provided the water treatment services since 2003, offered a revised agreement extending the period for Western Hills to pay the debt in installments. Voltz said he was informed that Diablo Grande's partners were to review the plan and decide whether to sign off on it.
Dwain Sanders, vice president of development for Diablo Grande, did not return several phone calls seeking comment. Veolia copied its letter to the state Department of Public Health, and The Bee obtained a copy of the letter.
The water issue was more aggravation for people who purchased homes at Diablo Grande, a 33,000-acre project in western Stanislaus County with plans for 2,300 homes, five golf courses, a hotel and conference center, winery, and commercial development. The resort is in the early stage of residential construction, with about 400 homes completed.
Diablo Grande closed its Ranch golf course in December and shut its other golf course, Legends, and the clubhouse last week, citing the slump in the housing market.
The project is in default on a $900,000 payment on a loan from Oak Valley Community Bank, and several mechanics' liens totaling $317,000 have been filed in recent months. The resort has been for sale for more than a year.
"We moved here because of the promises they made of a hotel, a spa, a shopping center, and none of this has panned out, and now we don't even have golf courses," said homeowner Kristina Ross-Ortiz. She said many residents don't know about the water treatment issue.
"The few of us who know are worried about it," said Christy Peterman, another homeowner.
State monitoring situation
While Diablo Grande received its land-use approvals from local government, Stanislaus County officials said the state has regulatory authority over the community water system.
Ken August, spokesman for the state Department of Public Health, said the department is closely monitoring the situation.
"We want to make sure that residents continue to get safe drinking water and that this issue is brought to resolution swiftly," he said.
Sonya Harrigfeld, county environmental resources director, said she talked with a state public health official who has been in contact with Western Hills.
"He told me they are in the process of trying to reorganize and hopefully they will have everything in place by March 1," she said.
The county will make sure Diablo Grande can supply drinking water before approving more building permits for homes, said Ron Freitas, director of planning and community development.
Some Diablo Grande residents have complained about the qual-ity of the drinking water, which sometimes has a brown or yellow tint and smells of chemicals, they said. According to Peterman, Western Hills officials told her the brownish color stems from low consumption among the occupied homes. The water cleared recently after she saw crews flushing the lines, she said.
Western Hills notified residents in a Jan. 17 letter that the drinking water exceeded standards in December for trihalo-methanes, a byproduct of disinfecting the water. Prolonged exposure is believed to increase cancer risks.
A state official said the contaminants exceeded the recommended limit of 80 parts per billion soon after water was delivered to the first occupied homes in 2004 and again in 2005. Treatment reduced the contamination to acceptable levels, but it recently came back. State officials soon will give the district an order to deal with the contamination.
Ross-Ortiz has e-mailed forms to fellow residents for recording their concerns about the water. The completed forms will be forwarded to the state health department, she said.
She suggested that contracting with another water service operator might improve the water quality, but she questioned whether the troubled development could secure a new operator by March 1.
Bee staff writer Ken Carlson can be reached at email@example.com or 578-2321.