Water

We received this note the other day from a reader curious about the water company purchase:

Hi

I was wondering how come no much is being said about our purchase of the water company, which is the first priority for our City Council. I would be interested in finding out what are people in town thinking about it, pr the level of awareness around that issue.

Thanks

The League of Women Voters (LWV) did a pretty good study of the water issue in 2005, and, as Foothill Cities noted just the other day, the issue ranked number one on the city's A-list of priorities. Tony Krickl in the 4/14 issue of the Claremont Courier, reported on this.

The water company issue tough one to parse. Golden State Water, in our view, may be the worse of two evils. Claremont's water rates are much higher compared to cities like La Verne or Pomona, which has it's own municipal water system.

A great part of the problem is that Claremont's water rates are regionalized, which means that in 1999 they were rolled into rates for high desert places like Hesperia and Barstow. Because of all the development that has gone on in those areas, Golden State Water has had to pay to build the infrastructure, pipes, pumping stations, etc., to deliver water there. Claremont's complaint is that it is subsidizing Golden State's cost to build those systems through the higher, regionalized rates.

Of course, that ignores the fact that the city under then-City Manager Glenn Southard, signed off on regionalization in 1999, actually arguing that it would benefit Claremonters in the long run (we tried pulling up the city's information for the 1999 regionalization debate, but city's document archive has been down all week).

Golden State Water counters by saying that Claremont gets lower rates through the economy of scale that it creates through regionalization. They say a stand-alone water system would result in higher rates for the city. Golden State also argues that municipal water systems can't be compared to privately owned systems because municipalities can hide costs of taxes, bonds, and other fees.

The total cost of the water company purchase would be over $100 million, according to the Courier article. So, the city would have to first use eminent domain to acquire the water company, which would involve considerable legal fees, then finance the purchase of the water company. The financing would be through revenue bonds that would be paid off through customers' monthly bills.

Other costs could include the purchase of the water delivery infrastructure, something that would add considerable maintenance cost and which may be in need of major repairs, and the expense of managing the utility. All these costs would be passed on to customers.

The LWV water report assumes that the total cost of financing the water company purchase would be $200 million ($100 million in revenue bonds, and another $100 million in interest over 30 years). Based on financing at a 5.3% rate, customers would not break even on their bills until after 18 years, according to the report. The LWV report also states that if the city refinanced the bonds after 11 years, then customers could reach the break-even point at that time.

There are a lot of unknowns built into the LWV projections. These include the state of the infrastructure, which could require extensive reworking and repair. It also assumes competent, efficient management--something that has not always been present in the city in the past.

On the whole, though, we favor a city purchase. It seems to make good public policy to have a vital, shared resource like water owned by the public rather than by private corporations. Further, as the LWV report points out, there is a concern about the purchase of private U.S. water companies by multinational corporations whose shareholder interest may not align with those of customers in local markets.

The success or failure of a Claremont-owned water company depends on honest, competent management. There will no doubt be the temptation to use water company as a cash cow to generate revenue to pay for other, unrelated projects or debt, a prospect former Councilmember Sandra Baldonado salivated at. If that happens, or if the city does not have the ability to maintain the water system, then costs will rise as much or higher than they have under private ownership.

But as long as the city runs things fairly and acquires the needed expertise, in the long run, 30 years out, the purchase seems to make sense.