What Are We Doing?

TOAV can learn from Shafter, Claremont (August 17, 2014)

APPLE VALLEY — In the realm of water supplier acquisitions, each situation varies as to why it is considered and how it is affected.

The town of Apple Valley recently took a step toward buying Apple Valley Ranchos Water Co., which has served the area since 1945. AVR is owned by Park Water Co. under Western Water Holdings LLC, a wholly-owned indirect subsidiary of Carlyle Infrastructure Partners, a division of The Carlyle Group.

Park Water is being offered for sale as a complete operation and not piecemeal, CEO Chris Schilling said. Apple Valley is exploring options for snagging the component that serves much of its population.

However, Schilling said last week, We want to own and operate the business.

Town officials are consulting with their counterparts in Missoula, Montana, because both municipalities have similar populations of about 90,000 and said they are concerned about control and future pricing of water supplies.

Missoula is served by Mountain Water Co., another subsidiary of Park Water. Missoula is pursuing acquisition by condemnation.

Several Southern California municipal water districts recently have acquired or are trying to acquire private water companies, and other California cities pursuing water acquisitions are Shafter and Claremont, for different reasons.

A friendly consolidation

Shafter, a city of about 17,000 residents a few miles northwest of Bakersfield, is completing its friendly acquisition of Bishop Acres Mutual Water Co. The company has 25 residential connections and owns a well that needed repairs, Shafter Public Works Director Michael James said. After encountering financial difficulties, the mutual water company approached the city for consolidation.

James said Shafter wasn’t initially receptive to connecting to a supplier outside city limits. But the city landed a Proposition 84 grant that allowed it to extend its connections beyond a railroad right-of-way.

The consolidation has taken about six years and will provide the former Bishop Acres water users lower rates while the city gets additional water production with a quality that, when blended with existing production, enhances the city’s water quality, James said.

Shafter has been involved with several other water company consolidations over the past 20 years or so, he said. In each case, the city requires that a pre-annexation agreement be signed so that future integration with the city is not an issue.

A contested condemnation

On the other hand, Claremont is pursuing a disputed purchase of the local Golden State Water Co. system that serves its community. That company, a subsidiary of American Water Co., also serves parts of Apple Valley, Barstow, Lucerne Valley and Wrightwood among other Southern California communities.

Claremont, with a population of about 35,000, offered $55 million for the local water system based on the premise the city will provide water service on an at-cost basis while Golden State strives to make a profit.

The offer was rejected because Golden State values its system and operations at $283 million, according to a company representative.

City spokeswoman Bevin Handel said the process to acquire the Golden State system has taken about two years, with public input, to determine how much the acquisition would cost and how to fund it.

Claremont is seeking residents’ approval of a bond financing measure for up to $80 million. It needs to be approved by more than 50 percent of the voters in November.

The water-rate bond approval precedes a court process to condemn Golden State that has two stages, Senior Vice President of Regulated Utilities Denise Kruger said. A judge must rule the city has a right to take the water company for public benefit and a jury would decide what the fair market value is.

The city’s website says, In the event that the acquisition price of the Claremont Water System exceeded $80 million, the city would need to increase water charges.

That’s not lost on Kruger, whose company maintains 149 miles of pipeline in Claremont and 58 miles in Apple Valley and has reviewed other acquisitions by eminent domain.

The price paid is always significantly higher than what the court estimated, she said. Everybody wants low rates but what we need to make sure is our systems are maintained properly, which is important for current and future residents.

Town seeking appraiser bids

Since the April 30 California Public Utilities Commission hearings on Apple Valley Ranchos’ current rate case that seeks about 30 percent increases for water use over the next three years, the Town Council authorized a request for proposals from qualified professionals to appraise the water company’s value.

The RFP was issued Thursday, town spokeswoman Kathie Martin said. It follows previous feasibility studies on the matter of possibly purchasing AVR in 2006 and 2011, and a 2011 Blue Ribbon Water Committee report.

The RFP is the first step in a possible acquisition of the water company. Its Sept. 15 bid closing is to be followed by hiring a consultant, reviewing the consultant’s appraisal and deciding on whether to proceed, Martin said.

The town could try to purchase AVR or follow Missoula and Claremont’s examples of exercising eminent domain. But Park Water Co. resists the overtures for purchase.

However the company is sold, Schilling said, We want to own and operate the business.

What is the company’s value?

We don’t know, Schilling said.

But if it comes to condemnation of Apple Valley Ranchos, he said, with more than 450 miles of pipeline at a value of about $1 million per mile, We are going to value every pipe, pump and valve we have.

Source: Gary Brodeur, Daily Press (also appeared August 18, 2014, under the title Water acquisitions tricky business.)