ESCONDIDO ——- The developer of a 742-house community in Harmony Grove, just outside the city limits of Escondido, has dropped a controversial bid to tap into the city's wastewater facility to provide sewage treatment.

Tom Zanic, vice president of New Urban West, said Friday that his company withdrew its request this week to have a local planning agency consider whether Escondido could legally provide treatment services to the development, called Harmony Grove Village.

The Local Agency Formation Commission, a state-chartered agency that oversees boundary issues for cities and special districts, had been scheduled to consider the request on Monday.

Although the decision by the Santa Monica-based developer ends the discussion for now, the question of who will provide sewage treatment to the development is an issue that is likely to return.

Zanic said that the decision to halt the treatment request came about as a way to maintain good relations with local community members, many of whom have supported the project.

"So many folks in that area were unhappy with the sewer alternative, we finally decided, let's just take it off the table," Zanic said.

Instead, he said, the company plans to move ahead with its original plan to build an on-site sewage treatment facility for the development, which will encompass 468 acres in the unincorporated area one half-mile west of Escondido.

The treatment facility would only be large enough to serve the population of New Urban West's development, Zanic said.

Michael Ott, executive director of the agency's San Diego division, said that the commission will consider whether to grant the developer's request to drop the treatment agreement, but didn't expect any objections.

A 1994 law limits what services cities can provide to areas outside their boundaries, and normally the city would annex any development in the unincorporated area before providing sewer or other services.

However, in September 2003, after Harmony Grove residents vocally resisted plans from Escondido to annex their 922-acre rural community, the commission released the area from the city's so-called "sphere of influence."

Ott's agency, nevertheless, had encouraged the developer to fully examine service agreements with surrounding water districts, and asked that the commission oversee the final process.

New Urban West had proposed building and connecting sewer pipelines from its development to the Hale Avenue Resource Recovery Facility, Escondido's sewage treatment plant. The developer would then have paid a fee of roughly $7 million to tap into the sewer line and have the city treat the effluent.

"It was going to be a wash, cost-wise," Zanic said. "And part of the thinking was, if the money could go to a public entity instead of a private one, that would be better."

A majority of Escondido's City Council had eagerly embraced examining the agreement as a potential revenue generator for the city.

City Manager Clay Phillips said, however, that he did not expect New Urban West's decision to have any effect on the city's finances.

"It would have been nice," Phillips said. "But it wasn't something we were counting on, anyway."

Councilman Ron Newman, the proposal's lone opponent, said he was pleased to see New Urban West reconsider their choices.

"I never saw the benefit to the city of allowing developers that are developing outside Escondido to come over and tap into our sewer system that has been paid for and maintained by Escondido residents for many, many years," Newman said.

Other critics worried that allowing the agreement between the developer and the city could have cleared the way for other deals that would bring more —— and denser —— housing to Harmony Grove.

And New Urban West's exit from the discussions does not shut the door on considering whether Escondido or another area water agency should provide sewage treatment services for Harmony Grove and surrounding neighborhoods in the unincorporated area of the county.

Ott said the matter was likely to return for consideration because other developers with designs on the area had submitted endorsements of the agency's plan to consider New Urban West's proposal.

One of those, James Greco, a planning consultant representing Brehm Communities, said the agency could play a vital role in ensuring appropriate and orderly development in the area. Brehm Communities is making plans for a residential project on 130 acres in Eden Valley, immediately north of Harmony Grove Village.

"It's a good idea, given that there's a significant interest in developing in that area, to determine who should be providing sewer services and how it should be done," Greco said.

Contact staff writer David Fried at (760) 740-5416 or dfried@nctimes.com.