What Are We Doing?
Opposing the hostile take-over of Liberty Apple Valley
A crisis over the credibility of town officials is complicating the already tangled effort by Apple Valley to take over the Apple Valley Ranchos Water Company.
In response to charges that they loaded the dice in carrying out a resident survey and then cherry-picked the information gained from the results of that survey to justify their effort to shoehorn Apple Valley into subsuming the Apple Valley Ranchos Water Company, town officials this month disclosed more of the data obtained by Encinitas-based True North Research, Inc. during its study of the water service takeover issue.
Town officials are bullish on the plan to purchase — either in a willing exchange or a forced one using the town’s power of eminent domain — the Apple Valley Ranchos Water Company from Park Water Company. But Park Water is resisting the move and the town, in an effort to stampede it residents into supporting the purchase, has engaged in a public information campaign that, while embroidering threads of accuracy throughout the tapestry it is weaving, has at some points deviated from the strict truth, leaving crucial information out of the total story and outright prevaricating with respect to certain considerations.
A fair number of town residents indeed are on board for taking action that will hold down the amount of money they will need to pay in the future for water. Yet some among them question whether town officials are using that sentiment to justify a power grab that ultimately is not guaranteed to achieve the goal of keeping water service rates reasonable but is calculated rather to extend the reach of Town Hall.
The Apple Valley Ranchos Water Company was created in 1945 by Newt Bass and B.J. Westlund as an adjunct to their real estate company, Apple Valley Ranchos. The water company’s infrastructure, however, was built piecemeal rather than in accordance with a comprehensive plan of lasting duration and quality of construction, and the water company merely expanded as the town grew in fits and starts, a hodgepodge of water mains and lines built one after the other, patched together in correspondence to the new development it was called upon to serve.
Apple Valley Ranchos Water Company outlived the Apple Valley Ranchos Real Estate Company, and was eventually acquired by Park Water Company, which was then owned by the Wheeler Family and provided water to Compton, Downey and Norwalk in Los Angeles County. When the town incorporated in 1988, city officials had the opportunity to purchase the company for $2.5 million, but declined, choosing not to convert the Apple Valley Ranchos Water Company to a municipal division, concerned less about the initial expense of acquiring the utility than with the projected ongoing and constant costs of having to repair, upgrade and maintain the system. In 2011, the Carlisle Group acquired from the Wheeler Family at a cost of $102.2 million the Park Water Company, which in addition to its Los Angeles County and Apple Valley holdings, also owns the Mountain Water Company, based in Missoula, Montana, serving some 50,000 people there. The Carlyle Group saw owning Apple Valley Ranchos as a sound long term investment strategy, providing it with a future return upon its sale while providing incoming revenue in terms of the continuing sale of water to a reliable customer base.
In 2011, 23 years after having missed the opportunity of buying Apple Valley Ranchos at a reasonable or even lower-than-reasonable price, the town of Apple Valley impaneled a so-called Blue Ribbon Committee to consider acquiring Apple Valley Ranchos, which ultimately advised against the acquisition. Prevailing sentiment abruptly changed in 2014, however, when Park, after beginning to implement in 2012 rate increases on Apple Valley Ranchos customers totaling 19 percent and then completing $8.1 million in capital improvements to the Apple Valley Ranchos water system in 2014, instituted another 30 percent rate hike on Apple Valley Ranchos customers to be implemented from 2015 until 2017. Shortly thereafter, town officials began trading notes with Missoula city officials, who were in the midst of an eventually successful effort to utilize the power of eminent domain to condemn and seek to acquire Mountain Water Company from Park Water Company. Even before Missoula prevailed in that case, town of Apple Valley officials began angling to take Apple Valley Ranchos away from Park Water Company, through a financing strategy involving issuing bonds to make the purchase. Town officials say the town will be able to service the bonded indebtedness and carry out improvements to the water system by means of the payments made to the town by water users/customers, i.e., the town’s residents, all the while providing water at a rate lower than what Park/Apple Valley Ranchos will charge its customers. Town officials say this can be achieved by simply dedicating the revenue from the water sales solely to this bonded debt service and water division operations and maintenance.
In its initial representations, the city said it envisioned Park Water selling Apple Valley Ranchos Water Company’s full assets for around $50 million. In support of this, the town obtained from what it referred to as
an independent appraisal firm the rather wishful
fair purchase price of $45.54 million.
That was met by Park’s response that Apple Valley Ranchos Water Company is not for sale. To town officials’ consternation, they learned that Park is in discussions with Algonquin Power & Utilities Corp., a Canadian utility company, for the sale of all of its California and Montana assets. A publicly disclosed offer was $327 million.
In this way, the $45.54 million the town’s
independent appraiser said Apple Valley Ranchos is worth previously was shown to be unrealistic. Word leaked out three months ago that despite Park Water’s insistence that Apple Valley Ranchos was not for sale separately, the town made an informal $50 million offer to purchase the company. That offer, the Sentinel is informed, was met by derision from Park Water corporate officers.
Consequently town officials undertook a more realistic assessment of what will be required to persuade Park Water to sell Apple Valley Ranchos to the town. According to town officials’ analysis,
Based on our understanding of the announcement by Algonquin Power & Utilities Corp., the purchase price was $257 million ($327 less $70 million in assumed debt) — well more than double the $102.2 million purchase price paid by the current owners, the Carlyle Group, just three years ago.
Referring to that number as
over-inflated, town officials state
any discussion of the acquisition of Apple Valley Ranchos must begin by separating it from the other two entities in the Park Water portfolio: Park Water in Los Angeles and the Mountain Water Company in Missoula, Montana. The town is interested only in Apple Valley Ranchos — one third of Park Water. One third of the announced purchased price by Algonquin is $86 million, which is within the range of possible values anticipated.
Overnight, it seemed, town officials abandoned the $45.54 million valuation of the water company, engaging in a sleight-of-hand that substituted a figure that is nearly 189 percent higher than the purchase price it was previously claiming as fair. Moreover, since that calculation, Apple Valley Ranchos has moved to finalize its acquisition of the Yermo Water Company, which will raise Apple Valley Rancho’s value yet more.
The town is holding in reserve the threat of using eminent domain against Park Water to force the sale of Apple Valley Ranchos, while carrying out an energetic public relations campaign, including what some referred to as a
push poll to both accumulate data to allow the town to claim its residents are in favor of the acquisition and simultaneously sell the acquisition idea to residents.
Push polls are a tactic used to influence public opinion in which an ostensible survey is carried out to determine public sentiment with regard to a certain issue when in fact the questions are laced with information designed to
push the respondents into giving answers deemed desirable by those sponsoring the polls. Such polls do not provide a scientifically certifiable or statistically valid sampling of public opinion.
Upon learning of Encinitas-based True North’s surveying of Apple Valley residents about the water takeover proposal, Apple Valley Ranchos General Manager Tony Penna went public with the charge that the town was conducting a
push poll to arm itself with statistics to justify its water division takeover plan.
In the aftermath of Penna’s statement, the town released selected elements of the
research conducted by True North, all of which suggested town residents are overwhelmingly in favor of the takeover.
In the meantime, some of the people who were contacted by True North were skeptical of the methodology used in conducting the survey, characterizing it as an informational briefing in favor of the town followed by questions that sought to elicit responses amenable to the town’s goal.
In an effort to quiet criticisms that the town was seeking to manipulate data in its favor while utilizing what was purported to be a
scientific pole as a propaganda vehicle, the town council authorized the release of 43 pages of documents related to the survey, including summaries intended for public consumption.
survey was conducted between June 26 and July 3, reaching 400 registered voters in town.
The town claims in all cases and scenarios presented, voter support for the town takeover of Apple Valley Ranchos was at or greater than 60 percent.
The documents can be viewed at AVH2Ours.com and on the town’s website at applevalley.org.
Richard Rorex, an Apple Valley resident and member of the chamber of commerce, indicated actual support for the water takeover is far softer than the town is indicating.
About two thirds of the people are paying no attention to this at all. Ten percent, which includes many of the town’s movers and shakers, are avidly in favor of it. The rest of us are against it, Rorex told the Sentinel the same week the survey was carried out.
Rorex said he was among those skeptical of both the town’s actions and its claims.
They are justifying this proposed takeover by trying to sell the residents the idea that they can lower the water rates the residents will pay, Rorex said.
It is going to cost X amount to provide water, no matter who delivers it. Now they are talking about eminent domain, which is total thievery, as far as I am concerned.
Rorex said there were three prime movers behind the takeover effort — town manager Frank Robinson, assistant town manager Dennis Cron, and town attorney John Brown.
They’re looking to make their name with this, Rorex said.
Rorex said he questioned the wisdom of having the town getting involved in an arena in which the private sector has been functioning for so long.
I have never seen a government agency take over a private business and do a better job of it, he said, citing the example of
the City of Los Angeles Department of Water and Power, which is going broke because they have been hiding their true costs.
Rorex acknowledged that Apple Valley Ranchos’ rates have risen, and said he understood the desire to keep a check on rising prices. Even if, he asserted, the town keeps water rates down, water users will be hit with hidden fees once the town is operating the water company as a municipal division. He noted that
In all of the talk about a takeover, they never discussed connection fees. Apple Valley Ranchos does not charge a connection fee. Over in Hesperia, which owns its water agency, they charge $5,000 to $7,000 every time you want to connect to the city system. My guess is that is exactly what the town of Apple Valley will do.
Rorex said that in the headlong rush to absorb the water company, town officials are neglecting to consider all of the angles.
The town doesn’t have the expertise to run the water system, he said.
When the town incorporated in 1988, they could have had it for nothing. They didn’t take it then. Now they are saying we can do it better and cheaper and that people will have control over our own water. But how much control do you have through a bureaucracy? We have a nice town council but they do not know how to run a water company.
Rorex said he questioned the town’s assertion that
the revenue from water operations would pay for the infrastructure repairs, maintenance, and water operation and cover the cost of the bonds the town will need to float to make the purchase. I do not think those are valid numbers.
Source: Mark Gutglueck, San Bernardino Sentinel