What Are We Doing?
Opposing the hostile takeover of Liberty Apple Valley
In a development that could have a bearing on water use and water resource control in San Bernardino County, a Montana judge has ruled in favor of a city there, allowing its forced acquisition of a water company to take place.
The city of Missoula, Montana utilized its power of eminent domain to condemn and seek to acquire Mountain Water Company, which is privately held by Park Water Co., a subsidiary of Western Water Holdings LLC and the Carlyle Group. Mountain Water fought the takeover and the matter went to trial before Judge Karen Townsend in April. On Monday, June 15, Townsend entered a judgment in favor of Missoula.
The case has a multitude of parallels with the town of Apple Valley, where Park Water Co. some time ago acquired the Apple Valley Ranchos Water Co. The Park Water Co.’s move to increase water rates raised the ire of local residents and the town of Apple Valley, in part inspired by Missoula’s gambit to wrest control of the water supply back from it private holder, has set about with its own plan of making an offer of
just compensation to the Park Water Co. for the purchase of Apple Valley Ranchos Water Co. While it does not appear Park Water Co. would be amenable to making a sale of the utility to the town of Apple Valley at anywhere near the price Apple Valley is contemplating, it is no secret that town officials intend then to proceed with a condemnation suit, similar to that used by Missoula against Park Water Co., utilizing its municipal power of eminent domain. Town officials would be hopeful of prevailing in that matter as the Montana city did.
Among those testifying before Judge Townsend was Assistant Apple Valley Town Manager Dennis Cron, who was question about the town’s efforts to utilize recycled water in the town of Apple Valley. The production and delivery of recycled water by the town was opposed by Apple Valley Ranchos Water Co. Cron’s testimony appears to have been instrumental in convincing Townsend that the Park Water Co. is not committed to the responsible and conservative use of the resource it controls but is rather exploiting its control of water for profit.
It was initially Park Water Company that subpoenaed Cron to testify in a deposition about what the company maintained were unreasonable efforts by the government entity to intrude upon its provision of water to the town, but that ploy ultimately backfired when Missoula’s lawyers, after considering his statements, called him as a witness to illustrate that Park Water Co. was not making the most efficient use of water that it could. Water conservation has been a growing issue in western states in the last few years in the face of a withering drought.
Park Water acquired the Apple Valley Ranchos Water Company as part of the long term investment strategy of the Carlyle Group. Earlier efforts in Apple Valley to block the Carlyle Group’s efforts to profiteer over its control of the town’s water supply fell through when a so-called blue ribbon committee impaneled by town considered acquiring Apple Valley Ranchos in 2011 but advised against it. Prevailing sentiment abruptly changed in 2014, however, when Apple Valley Ranchos instituted 30 percent rate hikes to be implemented from 2015 until 2017. Shortly thereafter, town officials began trading notes with Missoula city officials, where Mountain Water Co — also owned by Park Water Co. — had escalated rates.
Initially town officials were interested in seeing if Park Water Co. would entertain a buyout offer at a moderate price. But Park Water Co. officials rejected that overture, asserting that Apple Valley Ranchos was not for sale. But shortly thereafter it was learned that the Carlyle Group was seriously entertaining an offer by Liberty Utilities, owned by Algonquin Power & Utilities Group, to acquire Park Water Co, Mountain Water and Apple Valley Ranchos. Town officials, considering Park Water Co.’s representation that Apple Valley Ranchos was not for sale to be duplicitous, given the unloading of the water company to Liberty was in the works and Park Water Company was seeking California Public Utilities Commission approval to do just that.
Last month, the Apple Valley Town Council, with the exception of Larry Cusack, whose company does work for Park Water Co., authorized tendering an offering of
just compensation for the purchase of Apple Valley Ranchos Water Co., fully recognizing Park Water Co. will likely reject the offer, thus setting the stage for the town to gain control of the water purveyor through eminent domain.
Well ahead of the May vote, the town council gave indication of the serious intent it has with regard to acquisition of Apple Valley Ranchos, unveiling in March an appraisal the city had done of the water system’s value, which pegged it at $45.54 million. Park Water Co. officials scoffed at that valuation. The town has hired, through town attorney John Brown, an environmental and planning firm to produce an environmental impact document relating to the town’s acquisition of the water system. That is interpreted as the town’s signal that it will cross swords with Park Water in whatever forum is necessary to obtain unfettered control over the water company to prevent its private sector owners/operators from gouging its customers, i.e., the residents of Apple Valley. The city of Missoula’s victory in court was seen as a boost to the town’s strategy.
Nevertheless, Park Water Co. is not prepared to give up Apple Valley Ranchos without a fight, and those legal fisticuffs could prove expensive.
Chris Schilling, the chief executive officer of Park Water Co., said he believes efforts by government to abridge the ownership rights of private sector companies merely because those companies deal in commodities that are key to the function of a community — such as water or other utilities — is unconstitutional and legally untenable. The Carlyle Group, which is headed by David Rubenstein, has the financial wherewithal to sustain a court battle determine such a legal issue. The Carlyle Group is a global asset management firm based in Washington, D.C., specializing in private equity. It is amongthe largest alternative investment firms in the world. As of December 31, 2014, Carlyle had $194 billion in assets under management across 128 funds and 142 other financial instruments.
Source: Venturi, San Bernardino County Sentinel