City Settles With Golden State Water
On Tuesday, October 10, 2017, the Claremont City Council approved an agreement with Golden State Water Company to settle legal fees owed to the company as a result of the water system acquisition trial. Golden State Water has agreed to reduce the amount of legal fees the City owes in exchange for the City withdrawing its appeal of the court decision. The City will also withdraw its appeal of the amount the Court granted Golden State Water in legal fee reimbursement. The agreement signed by Council was finalized with Golden State Water on October 11, 2017.
In December 2016, Superior Court Judge Richard Fruin ruled against the City in its eminent domain case against Golden State Water Company. As a result of the decision, the City is responsible for reimbursing Golden State Water its legal fees of over $7.6 million. The City filed an appeal contesting the amount granted by the court.
Following the court’s ruling, the City met with several law firms specializing in the appeal process to review the City’s eminent domain case and give the City guidance. On January 31, 2017, the City Council held a public meeting to gather public input on moving forward with an appeal and hired an appellate law firm to analyze the City’s case. The appellate attorneys reviewed the judge’s decision and advised the City Council that the best possible outcome of an appeal was a retrial of the case. The cost of a retrial and additional attorney fees if the City loses the appeals would be in excess of $10 million. Even if the City were to win the right to take appeal, it would then move to the compensation trial, which could be appealed by Golden State Water Company.
With the agreement, the City agrees to pay Golden State Water an initial payment of $2 million dollars by December 31, 2017 followed by interest payments only over the next twelve years. The interest payment is $234,040 per year. The total amount the City will pay over the 12 year term of the settlement is $4,808,480. The remaining principal balance of $5,851,000 will be forgiven if the City does not file Resolutions of Necessity for 12 years. Should the City file a Resolution of Necessity within the next 12 years, the principal becomes payable immediately and the interest paid is lost.
The following statement is issued jointly by the City of Claremont and Golden State Water Company:
“The City of Claremont and Golden State Water Company have agreed to end the legal conflict that has been a source of division for the last five years. Despite our past differences, we share a commitment to serving the people of Claremont and will work together in the future to ensure the Claremont community remains a great place to live, work, and raise a family.
Golden State Water Company leaders and staff are dedicated to providing quality customer service and expert operation of the Claremont water system. Golden Water State Water will continue to provide the quality and reliability of water the community has come to expect in the most professional manner. Likewise, City leaders will steadfastly work to represent residents with a focus on ensuring the water service is the highest quality and the community is kept informed and involved."
Eminent Domain Trial
On June 13, 2016 the City began its Eminent Domain court trial in the Los Angeles Superior Court. Over the course of six weeks, the City and Golden State Water presented testimony and evidence to support their cases. On December 9, 2016 Judge Richard Fruin ruled against the City of Claremont and dismissed the case despite the City's 79-page objection brief.Court's Statement of Final Decision
The trial is the culmination of several years of research, community meetings, and evaluation by the City. Based on a thorough feasibility study developed by a team of experts in the industry, the City Council placed a revenue bond measure before voters to finance the acquisition of the Claremont Water system from Golden State Water. On November 4, 2014, Claremont voters approved the revenue bond by over 71.9%. The overwhelming majority of Claremont voters supported the City Council’s decision to acquire the water system in order to control our water future.
Following the City Council’s adoption of the Resolutions of Necessity on November 25, 2014, the City filed its Eminent Domain complaint in the Los Angeles Superior Court on December 9, 2014. The Resolutions of Necessity outlined a series of reasons why City ownership of the system is in the public’s best interest and cites local control, transparency, ratesetting decisions made with community input, and environmental conservation. Golden State filed an Answer to the Complaint on January 15, 2015.
Summary & Background
The vast majority of cities in California receive their water from a municipal or other publicly owned system. Public water systems are governed by locally elected officials and prohibited by State law from charging more for water service than the actual cost of providing that service. In other words, they are not allowed to make a profit. The Claremont water system, however, is not a public system. Instead, it is owned by the Golden State Water Company (Golden State). Golden State is a wholly-owned subsidiary of American States Water Company, a for-profit corporation that is traded on the New York Stock Exchange. As an investor-owned water utility, Golden State is regulated by the California Public Utilities Commission (CPUC). Under State law, Golden State is entitled to a rate of return (i.e. a profit), which currently is set at about 8.64%.
The Claremont water system serves the entire City of Claremont and small areas within the cities of Pomona, Montclair and Upland, and unincorporated Los Angeles County. The system includes approximately 11,000 service connections and serves about 35,000 people. However, Golden State accounts for the Claremont system as part of its overall "Region III" territory, which includes 21 separate water systems with approximately 93,000 connections in portions of Los Angeles, San Bernardino, Imperial and Orange counties. Moreover, instead of setting water rates based on the costs of the Claremont system alone, Golden State imposes a regionalized rate structure for the entire Region III. As a result, Claremont ratepayers subsidize repairs and infrastructure improvements for the benefit of other cities and communities that are hundreds of miles away from Claremont.
Under the CPUC system, Golden State files a new rate application for Region III every three years. With each new rate application, Golden State seeks substantial rate increases that apply to Region III and the Claremont system. The City of Claremont has protested each rate increase, yet continues to see double-digit increases. In addition to substantial rate increases, Claremont ratepayers are subject to a Water Revenue Adjustment Mechanism (WRAM), a CPUC-authorized surcharge that allows Golden State to recover lost revenue when ratepayers conserve water. Claremont residents and businesses pay dramatically more for water than those who live in neighboring cities served by a municipal water system.
In July 2011, Golden State announced it would request a combined 29.4% rate increase for Region III for the years 2013-2015. Through letters, emails, and calls to City Hall, Claremont residents called on the City Council to take action. In response, the City Council commissioned an appraisal and feasibility study to determine the fair market value of the Claremont water system and evaluate the financial and practical feasibility of potentially acquiring the system. Based on the findings of these analysis, the City elected to make an offer to purchase the system from Golden State for its fair market value of $55 million. Golden State has summarily rejected the City's offer, stating that the water system "is not for sale.
On November 4, 2014 Claremont voters approved the issuance of revenue bonds to finance the purchase of the Claremont Water System by 71%. Following the approval of the bond measure, the City Council held a hearing on the Resolutions of Necessity. Through the hearing process, the City Council determined that acquisition of the Claremont water system was in the public's best interest. The City Council unanimously approved the Resolutions of Necessity. One week later in December 2014, the City filed an Eminent Domain complaint in the Los Angeles Superior Court.
Financial Feasibility Study
On June 10, 2014 the City Council approved resolutions to place a ballot measure on the November 4, 2014 ballot. The ballot measure asked voters to vote on a revenue bond to finance a potential acquisition of the Claremont water system. The City's expert team has determined that the system's existing revenue can support a purchase price up to $80 million. The ballot measure ask voters to approve $55 million to be used if the purchase price exceeds $80 million. Claremont voters approved the measure by 71%.
Final EIR - Potential Water Acquisition
The City of Claremont prepared and completed a final Environmental Impact Report (EIR) for the proposed Claremont Water System Project. An EIR is an informational document that evaluates a proposed project's potential to significantly impact the environment, while also identifying ways to reduce or avoid environmental impacts through mitigation measures and alternative. The City Council held a public hearing on the EIR on March 25, 2014 and approved the final EIR on April 8, 2014.
Townhall Meeting Presentation & Information