Claremont water supply battles heads to court
By Liset Márquez, Inland Valley Daily Bulletin
Posted: 06/12/16, 7:01 PM PDT | Updated: 7 hrs ago
CLAREMONT >> Opening statements are expected to begin today in Claremont’s fight to take over ownership of the local water system from Golden State Water Co.
Los Angeles Superior Court Judge Richard Fruin will preside over the trial, which is expected to take several weeks.
At the trial, both sides are expected to provide expert witnesses as well as review documentation before the judge decides — it’s a bench trial — on whether the city has the right to take the Claremont Water System by eminent domain.
“Ultimately, the judge will rule in the city’s favor if he believes it is in the public’s best interest for the system to be owned by the city instead of Golden State Water Co.,” City Manager Tony Ramos said in a statement.
On Nov. 4, 2014, voters overwhelmingly backed a bond known as Measure W that allows the city to borrow up to $135 million to acquire the system, which serves more than 11,000 customers.
For decades, residents have asked the city to proceed with a takeover, but efforts didn’t move forward until three years ago when water rates continued to escalate.
Claremont filed its eminent domain case Dec. 8, 2014. In the 43-page complaint, Claremont details the information about the water system it would acquire from Golden State Water.
In documents filed with the court last month, attorneys for Golden State argued that because its property is “electric, gas, or water public utility property,” this makes it different from typical eminent domain cases.
In most lawsuits, when a public entity is trying to condemn private property appropriated for public use, the argument for the public entity’s acquisition “for the same or any other public use” is considered “more necessary.”
Attorneys for Golden State argue “the Eminent Domain Law gives greater protection to Golden State’s property because it is ‘water public utility property.’ ”
Golden State Water declined to comment, citing the pending litigation.
“Golden State will show that the city’s proposed condemnation is neither ‘more necessary’ than Golden State’s existing use, nor ‘necessary’ at all,” attorneys for Golden State wrote.
Mayor Sam Pedroza said residents have been patient with the city to get to this point.
“It feels like this issue was up front-and-center for years and then with the court process, things move at a snail’s pace,” he said. “We’re still moving forward … one process step at a time.”
With overwhelming support from the public on the 2014 ballot measure, he said citizens have made it clear they want ownership of the Claremont water supply and the long-term stewardship of the system.
“Claremont people have seen the value of being under local control, not just for our usage, but in how we manage our resources,” he said.
City, Golden State go head-to-head next week in court
June 09, 2016 4:12 PM
The trial to determine control over the Claremont water system is set to begin on Monday, June 13.
The proceedings will be the city’s golden opportunity to convince Los Angeles Superior Court Judge Richard Fruin that it has the standing to claim eminent domain over the system, which is currently operated by Golden State Water Company (GSW).
City Manager Tony Ramos is confident that the judge will rule in the city’s favor.
“Our attorney will present a very well-documented case that the city has the right to take over the system,” he said.
Attorneys from Best, Best and Kreiger, including Ken MacVey and John Holloway, will be representing Claremont at the trial.
The impetus for the acquisition was repeated rate applications by GSW that saw Claremont’s water rates dramatically increase over the years. According to the city, Claremont pays an exorbitantly higher amount for their water than neighboring cities.
Golden State has long contended that the water system is not for sale and has refused formal requests for purchase from the city. The company has called into the question the necessity of the water takeover at all.
The trial is expected to last several weeks, according to a release from the city, and both sides will present expert witnesses arguing for and against the acquisition of the system.
Claremont Public Information Officer Bevin Handel explained that municipal control over the water system is favorable, as opposed to a private company, because of the potential ease of access and input from Claremont residents, as well as incorporation with the city’s sustainability plans.
“I believe it is in the best interest of the public that this belongs in municipal ownership,” she said.
An opening 39-page brief filed by the city ahead of the June 13 trial outlines a number of reasons why they should take over the system, including high rates from GSW, mismanagement of the system by GSW and what the city says are unsafe operations of the system.
A specific point of contention the city has against Golden State is a surcharge called the water revenue adjustment mechanism (WRAM), which the city describes as a charge added to customers’ bills if their water usage falls below the company’s target. The city says it was implemented to keep GSW in the black as Claremonters work toward sustainability and reduce water usage.
“I don’t know any other business that’s guaranteed a profit when they don’t project correctly,” Ms. Handel said.
Golden State filed its own 183-page brief on May 27 claiming, in part, that it’s not necessary for Claremont to take over a water system that has been operated by GSW since 1929.
“Now the city wants to take the Claremont water system, by the power of eminent domain, in order to provide the same water from the same wells through the same pipes to the same residents and businesses that Golden State serves,” the brief outlines. “The most basic question to be resolved in this court trial is simple: is it necessary for the city to do so? The answer to that question should be a resounding ‘no.’”
GSW also claims that residents will not see their water rates fall under municipal control.
“To the contrary, the debt load that Claremont will be forced to take on to purchase the system assures that those in Claremont will actually be paying higher rates for the same water,” the brief states.
Ms. Handel noted that, “the water system currently generates sufficient revenue to support an acquisition price of up to $80 million, without raising existing rates.” The actual rates won’t be determined until the city takes over managing the system.
The move to acquire the system received overwhelming voter approval—72 percent in favor—in November 2014 through Measure W, which approved up to $135 million in bonds for the potential purchase. A lawsuit formally claiming eminent domain was filed on December 9, 2014.
The system includes 11,000 service connections and 19 wells, transmission lines, booster stations, pressure regulating valves and reservoirs across Claremont, as well as parts of Upland and unincorporated Los Angeles County.
An agreement with the city of La Verne was reached in October 2015 outlining that Claremont’s neighbor to the west would operate the system, should the city succeed in taking it over.
Representatives for Golden State Water did not respond to a request for comment as of press time.
Opening statements for the trial will take place at the Los Angeles Superior Court at 8:30 a.m. in department 15.
April 14, 2015, American States Water: Promising Shareholders Higher Returns
- Despite no increase in revenue, American managed to grow its earnings by 16% in the latest quarter.
- American’s primary market is expected to provide high demand of water over the long term.
- Cost-reduction initiatives will bring bottom-line savings in the current fiscal year.
- American is undervalued by 32%.
American States Water's (NYSE:AWR) share value has gone up by 30% in a year. The company is a provider of water-distribution services to clients in the private and military sector. American has remained a top performer in the industry since a long time: the company's net income has grown at an average rate of 10% over the past three years, while the industry has seen its income increase at a far lesser rate of 5.7%. With the macro environment proving favourable for American, this trend is expected to sustain ahead.
In this article, I will evaluate the company's financial strength by reviewing its performance in the latest quarter. Later, I will discuss factors to support my quantified upside of the company.
During the period, American's aggregate revenue remained the same at the year-ago level of $110 million. However, rate increases approved by the California Public Utilities Commission "CPUC" together with cost-reduction initiatives helped in growing water segment's income by 16%. A similar trend followed for Contracted Services segment, which delivered earnings growth of 20% owing to an increase in construction activity and the completion of a large pipe-replacement project at Fort Bragg, North Carolina.
Redemption of long-term notes allowed American to lower its interest expense by 6.4% to $4.7 million as well, which led it to the deliver earnings of 35 cents per share. The figure not only beat the analysts' estimate of 25 cents by a wide margin but also came 16% above the profit reported in 2014. Looking ahead, the earnings momentum is expected to sustain owing to the reasons discussed below.
The US consumers more water per capita than any other country in the world. Within the country, American's primary market lies in California. At present, the region is facing severe water-supply issues in which agricultural applications are battling against environmental uses and the demands of a growing population. As such, 80% of water services are being used in farming and producing crops, where a lot of criticism is emerging regarding the consumption of large supplies for fuelling the production of almonds and other water-hungry crops.
Given the possibility of recurring droughts, authorities forecast that the state will have an unmet water demand of 1.5 trillion gallon by 2030. While the conditions are worrying for the economy of the region, they provide an attractive ground for American to prosper. To be precise, not only an unmet demand will help in keeping the company's revenue stream alive, but price increases such as the latest one will help in passing additional development costs to customers as well. Given the inelastic nature of the market, the company also won't have much difficulty in retaining customers even if the prices are increased further in the future.
American is also working on lowering its cost base in order to provide investors a satisfactory gain in profit. Recently, CPUC issued a final decision for the company's electric general-rate case, which stated the rates to be charged over the next two years. The initiative has allowed American to reduce its depreciation and amortization expenses by 12% to $9.5 million, which will permit the bottom line to improve at a relatively faster rate over the upcoming year.
Also, CPUC has approved the company's request to extend the date of the filing of its next cost-of-capital application to March, 2016. As a result of the approval, American's water business' authorized cost of capital of 8.34% and permitted return on equity of 9.43% will continue to prevail till the end of next year.
Industry growth, approval of new rates, and cost-reduction initiatives have led the analysts to believe that American's earnings will grow by 5.6% to $1.68 per share in 2016. The growth in earnings will ensure that the stock-price trend sustains ahead.
American pays a dividend of 21.3 cents, which earns an attractive yield of 2.1%. The company also remains undervalued through several metrics that investors tend to rely on: American's trailing P/E of 25.5x is above the 24.1x industry average, but the forward P/E of 23.6x is below the industry average. The company's price-to-cash flow multiple of 14.8x is 6% lower than the industry average and the price-to-sales ratio of 3.3x is well below the 4.6x industry average. Adding the fundamentals reveal that American is undervalued by 32% (see table above). Therefore, the company holds a buy rating.
July 17th Editorial in Opinion
Privatization, Not Threats, Best Drought Action
In your editorial of July 17, 2014 you make the point that “Cost would be good incentive for conservation” and “Individuals would conserve based on what they could afford to consume”. This incentive point overlooks the fact that some 15,000 Orange County customers of Golden State Water, a PRIVATE for profit Water Company cannot reduce their cost of water by conserving water. The conservation incentive has been removed. How? It is called WRAM. When GSW sells less water and therefore receives less revenue, the revenue difference is calculated and added to each bill. Golden State Water is allowed to collect the shortfall from the customer using the CPUC approved “Water Revenue Adjustment Mechanism” (WRAM). Everyone’s bill has the WRAM and the additional charge to make up for lost revenue. With the WRAM all revenue risk is transferred from Golden State Water to their customers. The result, we pay for water we never use. The Golden State Water Companies prime directive is to maximize profits with ever increasing water rates. They are not interested in protecting consumer’s pocket books.
The many local PUBLIC water agencies such as Orange Water, Tustin Water, and East Orange County Water District deliver water as a public service. Customers are charged only the actual cost of water and the cost of operating the system, no profit and far lower prices. Communities have local control of these agencies, the agencies do not answer to the CPUC, not so with private Golden State Water. It is the California Public Utilities Commission who approves the rate increases, the tiers, the surcharges, the WRAM.
During the last five years including 2014, this private company has with CPUC approval, raised their delivered water price by well over 55%. They utilize rate hikes to maximize profits, to support their parent company American States Water and their investors. Some of the categories listed as part of their summary of earnings include: paying property tax, payroll tax, local taxes, state and federal income tax. In addition, they are guaranteed by the CPUC over 8% profit on infrastructure and capital improvements, this and more is added into the price of the water they sell as a commodity. Golden State is by far, the high price water company and there is no financial incentive for their customers to conserve.
Water, this necessity of life should never treated as a commodity or be sold for profit.
Legislating privatization of water is not in the public interest. It would be a colossal costly mistake for the public and a windfall for any private company.
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