What Are We Doing?

Expense of possible AV Ranchos acquisition difficult to gauge (March 14, 2015)

APPLE VALLEY — When town officials recently embarked on a possible purchase or takeover of the Apple Valley Ranchos Water Co., they knew the move involved risk and undetermined costs.

Algonquin Power Co.’s Liberty Utilities has agreed to purchase Western Water Holdings LLC — a Carlyle Group company — for $325 million, including $80 million in debt. Western Water Holdings LLC owns Apple Valley Ranchos and other water companies under Park Water Co.

If the merger and acquisition is finalized, the town will not know beforehand how the water company purchase will affect ratepayers, because the potential buyers refuse to produce documents to the town, Town Manager Frank Robinson said. The town is interested in maintaining and providing quality and reliable services to our residents and ratepayers.

The Town of Apple Valley has expressed a strong interest in purchasing Apple Valley Ranchos Water Co. in order to gain local control that will help moderate customer rates, officials say. Customers have complained to the town about the rise in rates, and the town’s cost of operating parks and the Apple Valley Golf Course has been impacted.

Robinson said the acquiring utilities have no experience operating a water system in California and do not have vested interests to the residents or ratepayers. Liberty Utilities does operate water systems in Arizona, however.

We are interested in knowing what measures the (California Public Utilities) Commission will take to ensure ratepayers are not paying for the overpriced offer submitted by Algonquin and Liberty, he wrote. The Commission must ensure that the regulatory commitments identified in the merger application, including the commitment that the cost of the transaction will not be passed on to ratepayers, are enforceable and that the utility has the affirmative obligation to show compliance.

Meanwhile, the costs of reliably providing clean and safe water is climbing everywhere, especially because of the expense of replacing aging delivery systems and components. It is a situation prevailing nationwide, as noted by the U.S. Environmental Protection Agency.

In Claremont, where that city is trying to acquire the Golden State Water Co. system serving its nearly 36,000 residents, Golden State said a couple of years ago the value of land and assets the company owns there exceeded $200 million. In court documents, Golden State said even at an acquisition cost of $120 million, the city would not break even until 17 years later.

In Apple Valley and adjacent unincorporated areas to the east, nearly 20,000 connections are served by the Apple Valley Ranchos Water Co. with 450 miles of pipeline, which Park Water Co. CEO Chris Shilling said would be valued at $1 million a mile. The length of pipeline also includes storage tanks, pumps, service trucks, offices, and employees.

If the town proceeds with an unnecessary takeover of Ranchos, we do know it will be a lengthy and costly legal process, AVR General Manager Tony Penna said. No one knows the full cost of taking over Ranchos, as the fair value for all of the assets of this system plus possible damages will be determined ultimately in a jury trial.

History, though, has proven it costs far more than what politicians and their paid consultants initially promise. The town has other priorities that are more important to the future of Apple Valley.

The Town of Apple Valley has taken a long look at the matter.

The town has previously hired experienced financial advisers to assist in reviewing the funding options available to the town should it purchase Apple Valley Ranchos Water Co., Robinson said. We have also retained a utility valuation expert to assist in determining a value.

The company was purchased less than four years ago as part of the sale of Park Water Co. to Carlyle Infrastructure Partners, and that purchase price roughly provides some indication of the value of Park Water. The city of Missoula, Montana is presently condemning (another) part of Park Water Co., Mountain Water Co., and those valuations provide additional information as to the fair market value of that portion of Park Water Co. If Mountain Water Co. is condemned, the operational and financial components of what remains of Park Water Co. will need to be assessed.

With uncertainties abounding, the town is taking the exploration process one step at a time.

At this point all we have is the Feasibility Study that shows we (can) afford to purchase Ranchos Water under certain parameters, Apple Valley Town Councilman Scott Nassif said in an email. We have commissioned an appraisal of Ranchos from both an infrastructure and business value point of view.

Once we we have the appraisal we can then look at all the town’s options. We hope to have the appraisal ready to present at a council meeting within the next 30 to 45 days.

Robinson said, In the weeks to come the town expects to hold one or more town hall meetings to discuss the possible purchase of Apple Valley Ranchos Water Co. At that time, it is expected that additional information regarding the estimated fair market value of Apple Valley Ranchos Water Co., as well as costs and expenses associated with the acquisition of Park Water Co. and the benefits of public ownership of the local water system, will be discussed in more detail.

If the town were to move on the appraisal and call for an election to register voter sentiment on the issue, the town clerk estimates the cost for a special election could be about $186,000 — a figure based on how much the off-year November 2013 Wal-Mart ballot Measure D cost to conduct.

If a ballot question is part of a General Election, we estimate it would be slightly less than half that, town spokeswoman Kathie Martin said.

Source: Gary Brodeur, Daily Press