FAQ: Claremont FLOW

This FAQ is also available to be downloaded as a PDF.

Who is funding Claremont FLOW (Friends of Locally Owned Water)?

A:

This grassroots group is collecting donations from Claremont residents who are tired of being run over roughshod by Golden State Water (GSW). A list of supporters can be found on the website. We are a volunteer-run organization.

What is our main goal?

A:

Our main goal is local control.  With local control there would be:

  • more efficient use of local wells
  • a chance to implement water reclamation programs
  • residents involved in rate setting (not the CPUC)
  • transparency in rate setting
  • no regional rates that subsidize population growth in distant desert communities
  • safety from having our water system sold to the highest international bidder
  • the opportunity to provide incentives for heavy water users to reduce use
  • no need to make a profit or pay income taxes
  • no highly paid executives to support
  • local accountability for decisions
  • the ability to plan for the water needs of future generations

The system will be managed in our own best interest!

Are Claremont’s water rates really unreasonably high?

A:

From 2008 to 2013 Claremont water rates, based on cost per unit (CCF), more than doubled, and they were already much higher than in neighboring cities.  Although the City and residents have continually protested increases, GSW has been awarded large increases every three years and there is no indication that this will stop.  In spite of having fewer wells, the average monthly bill in La Verne is about $50 less than in Claremont for the same amount of water.

Isn’t a large corporation necessary in order to have safe, reliable water?

A:

The requirements for safe, clean water are exactly the same no matter who is delivering the water. Most of our surrounding cities have owned and operated their own water systems for many years without difficulty.  La Verne has done so for over 100 years.

Wouldn’t our rates be higher with a City-owned water system?

A:

No. Customers in local cities with their own water companies pay much lower rates than we do in Claremont.

Why are rates lower in our surrounding cities?

A:

City-owned water companies are controlled locally.  Rates are set by the local elected bodies which are accountable to local residents.  Their water rates reflect actual costs.  In addition, these is no profit margin, and they pay no taxes.

How are water rates set at the moment?

A:

GSW proposes rate increases every three years.  These must be approved by the California Public Utilities Commission, an appointed body far from Claremont and not accountable to us.

What sort of rate increases has GSW been asking for? How much do they get?

A:

Water rates for an average user in Claremont, including meter charges, rose 8% per year from 2009-2013, while rates in La Verne and Pomona rose just under 3% per year.  In Upland there was no increase! The CPUC typically gives GSW about half what they ask for.

What is the WRAM?

A:

WRAM is the Water Revenue Adjustment Mechanism.  This guarantees Golden State the same revenue, even when we’re conserving water.  Since water use goes down when we conserve it, the CPUC allows GSW to add an additional charge to our water bills—the WRAM charge—so that they maintain the same revenue and profit margin (about 9%)

What is the appraised value of the water system?

A:

In 2013, the system was appraised by an independent firm at $55 million, based on the its earning potential.

Won’t owning a water system greatly increase the cost of running the City?

A:

No. The water system would be entirely self-supporting. Claremont is currently talking with La Verne about contracting management of the system to them. They already have an efficient administrative and maintenance structure in place and there is no plan to establish a City of Claremont water department. Details of the agreement are still being worked out.

What is the underground infrastructure like? Can we afford to keep it in good condition?

A:

Our neighboring cities also have to maintain their own underground infrastructure, yet their cost to consumers is still much lower than here in Claremont. GSW has not been forthcoming with information about the condition, but they recently spent money on repairs, and consultants have said the condition is currently good. We already pay GSW for repairs and maintenance through our water rates. If we own the system, there would be no change.  In addition, government programs that would help pay for maintenance are available to cities.

How would we pay for purchasing and running the water company?

A:

The initial purchase would be funded by revenue bonds. Repayment of the bond debt would be covered by charges on the monthly water bill.  The cost of running the water system would be built into the water rates and service fees, just as we see on our current water bills. The money could not be used for any other purpose (schools, etc.).  The city’s capacity to borrow would not be affected.

Is a revenue bond a tax?

A:

No. Revenue bonds are repaid using the money raised by the utility. That means that it will be repaid completely by the money collected from the water bills.

Won’t our water bills go up if we own the system?

A:

If the cost of the water system is up to $80 million, residents will not see an increase in their water bills over what GSW would charge. If the cost is over $80 million, the rates will increase for a limited time.  If the cost  were $120 million for example, the average water bill would initially go up by an estimated $21 per month, would break even (compared to GSW) after several years and be lower after that.  Increases should be less for light users, more for heavy users. Rates would drop sharply as the bond is repaid and in the end we would own the system. GSW will continue to obtain increases from the CPUC that will raise rates.

Would our water rates go down if we owned the water system?

A:

They could, but only if the cost is under $80 million. Repaying the bonds is like repaying a home mortgage. At the end, we own it and there are no more payments.  Before that, bond rates would remain constant in contrast to life under GSW whose water rates never go anywhere but up.  The City website and the Claremont FLOW website have more information about the projected rates over the 30-year repayment period, and where costs are projected to go down.

Why don’t we know exactly what rates will be if we own the water system?

A:

We don’t know how much more than the appraised value of $55 million the cost will be as the exact purchase price has not yet been determined. Rates should only increase if we need more than $80 million in revenue bonds. However, changes in the actual cost of the water we need to buy, repairs, and suchlike could also have an affect on the rates. These would apply to GSW as well as to us, of course, and we would not have to adjust rates to maintain a fixed profit margin since it is illegal for the City to make a profit.  See the question “Won’t  our water bills go up if we own the system?” for an indication of possible rate increases at $120 million.

Is GSW willing to sell the Claremont water system?

A:

No. GSW has refused all offers. GSW has instituted lawsuits, funded considerable advertising, and worked with a local group called CAWA with the intention of derailing the City’s efforts to acquire the water system.

What is eminent domain?

A:

This gives cities the ability to acquire private property if it is determined that there is a compelling public interest in doing so.  If GSW continues to refuse to sell our system, this would be an option for the City.  The final purchase price under eminent domain would be set by a court, based upon “just compensation”, which is defined as fair market value. Naturally, we cannot predict a court decision in advance. The City’s experts have appraised the value at $55 million.

Have other cities succeeded in taking control of their water systems?

A:

Felton, CA, successfully got out from under a German company that bought their water system and then raised rates very aggressively. That company agreed to settle. Eminent domain proceedings involving GSW are currently underway in Ojai, and several other cities are beginning proceedings.

I keep hearing different numbers—$55, $80, $135 million. What are these?

A:

$80 million is the amount of debt that could be repaid without having any effect on your water rates. In other words, the money we currently pay to GSW would cover the amount of debt.

$55 million is the amount of additional bond money that might be necessary if the court decides the purchase price should be the worst-case scenario of $135 million.

$135 million is the sum of these last two, but it doesn’t mean anything since no price has been set for the water system (which was appraised at $55 million).

If the cost is $80 million or less, we could pay for the revenue bonds needed without any additional cost to residents.  If the price is more than $80 million, we would need to take out some additional bonds to cover whatever the difference is.

It seems foolish to buy the water system if rates will go up!

A:

It would be foolish not to.  Rates are guaranteed to go up under GSW ownership but we have a chance to control the increase if we own the company. Demand for water is increasing as population grows, and California is experiencing prolonged drought.  We cannot survive without water and our future must not be under the control of a private monopoly that doesn’t have our best interests at heart, and which the CPUC is not effectively regulating.

The wording on the bond measure has changed from $55 million to $135 million. Why is that?

A:

We won’t see any increase in our water bills if the cost of the system is up to $80 million (if it is less, our bills would go down) so the Council originally planned to approve that amount themselves. However, rates will increase if the total cost is above $80 million. The City Council wanted to be sure Claremont residents are willing to pay somewhat higher rates for a limited time in order to acquire control of our water.  That is why they asked the residents to approve additional bonds for up to $55 million which would bring us up to the worst-case scenario of $135 million.

After the City declined to accept the CAWA/GSW MOU (posted under Answers button on the website), the Council expressed willingness to continue talks. On July 31, they voted to enter an agreement with GSW to resolve some issues. One of the terms of the agreement was that the City measure would ask for approval to issue up to $135 million in revenue bonds, the sum of the amount that would not raise the rates ($80 million) and the additional “just in case” money ($55 million). This is not actually an increase in the amount the original bond asked the residents to express willingness to pay if necessary, since 80 + 55 always did equal 135, but GSW hopes just seeing the number will frighten people into voting ‘no’ on the bond measure.

How does Claremont benefit from the July 31 agreement?

A:
  • GSW dropped the petition it was circulating to compete with the City measure. It is not clear the initiative would have made it onto the ballot, but now it is certain there will only be the City measure.
  • All CEQA, Public Records Act, and Brown Act lawsuits currently in progress will be dropped and no new ones related to actions that occurred before the agreement was signed will be instituted.  This saves legal fees of course but more importantly, since eminent domain cannot be completed while a CEQA suit is open, this allows us to move forward when the bond is approved.  Although this does not prevent all future lawsuits, it does prevent any more CEQA suits that could block eminent domain.
  • GSW agrees not to contest the use of revenue bonds as a funding mechanism. A lawsuit related to funding mechanism has stalled Ojai’s takeover of its water system indefinitely.

How does GSW benefit from the July 31 agreement?

A:
  • They have succeeded in getting the measure changed to request up to $135 million which they hope will scare off enough voters to defeat the measure.  They hope that the voters won’t be able to add up 80 + 55 and see that the worst-case scenario hasn’t changed at all from that indicated in the original measure asking for $55 million. They also hope no one will notice the “up to” which clearly indicates that we aren’t really expecting to have to go that high to purchase the system.
  • They gain access to portions of the feasibility study funded by the City when it was trying to determine if proceeding with acquisition of the water system made economic sense. GSW hopes to challenge the information and methods that determined the appraised cost of $55 million and that we could repay as much as $80 million in revenue bonds without paying more than GSW would be charging us.

What doesn’t the July 31 agreement do?

A:
  • GSW is not required to reveal how much money it will spend on defeating the campaign either directly or indirectly, by itself or by supporting other groups.
  • It does not prevent GSW from bringing new lawsuits (except ones related to CEQA).
  • It does not include any remedy other than suing them if GSW breaks the agreement.

What local organizations support purchasing the water system?

A:

The League of Women Voters of the Claremont Area has advocated purchase of the system for decades. Sustainable Claremont also supports acquisition of the system as does the Pomona Valley Chapter of Progressive Christians Uniting.

"Local Control" is mentioned by many groups. Do they all mean the same thing by it?

A:

When the City of Claremont, Claremont FLOW, the League of Women Voters, Sustainable Claremont, and many others, talk about “local control”, they mean the ability to set water rates and manage the system through locally-controlled and locally-accountable elected bodies which would have our best interests at heart. The group called CAWA has a much more limited definition of local control which would leave most of the power with Golden State Water. This can be seen by reading the MOU they entered into with GSW.

What is CAWA?

A:

This is a small group of people who propose forming an agreement with Golden State Water rather than having the City purchase the water system.  CAWA stands for Claremont Affordable Water Advocates.

Why has the bond amount changed from $55 million to $135 million?

A:

After they declined to accept the CAWA/GSW MOU, the Council expressed willingness to continue talks. On July 31, they voted to enter into an agreement with GSW to resolve some issues. One of the terms of the agreement was that the City measure would ask for approval to issue up to $135 million in revenue bonds. GSW hopes this will frighten people into voting ‘no’ on the bond measure even though 80 + 55 always added up to 135. It is not yet known how much more than the appraised value of $55 million we will actually need.

How does the City benefit from the July 31 agreement with GSW?

A:
  • GSW dropped the petition it was circulating to compete with the City measure. It is not clear the initiative would have made it onto the ballot, but now it is certain there will no measure competing with the City measure.
  • All CEQA, Public Records Act, and Brown Act lawsuits currently in progress will be dropped and no new ones related to actions that occurred before the agreement was signed will be instituted.  This saves the City millions in legal fees of course but more importantly, since eminent domain cannot be completed while a CEQA suit is open, this allows us to move forward when the bond is approved.  Although this does not prevent all future lawsuits, it does prevent any more CEQA suits that could block eminent domain proceedings.
  • GSW agrees not to contest the use of revenue bonds as a funding mechanism. Lawsuits related to funding mechanisms can stall a water system takeover.

How does GSW benefit from the July 31 agreement with the City?

A:
  • They have succeeded in getting the measure changed to request up to $135 million which they hope will scare off enough voters to defeat the measure.  They hope that the voters won’t be able to add up 80 + 55 and see that the worst-case scenario hasn’t changed at all from that indicated in the original measure asking for $55 million. They also hope no one will notice the “up to” which clearly indicates that we aren’t really expecting to have to go that high to purchase the system.
  • They gain access to portions of the feasibility study funded by the City when it was trying to determine if proceeding with acquisition of the water system made economic sense. GSW hopes to challenge the information and methods that determined the appraised value of $55 million and that we could repay as much as $80 million in revenue bonds without paying more than GSW would be charging us.

 The agreement does not prevent GSW, or any other group, from bringing future lawsuits.

Where will we get water if we own the system?

A:

Our wells, along with others, feed the local aquifer. The Six Basins Watermaster (a board, not a person) determines each year how much water can be safely removed from the aquifer. Each of the companies or cities that are part of this organization will be authorized to withdraw a certain percent of the water. This "right to pump" will come to Claremont if the city owns the system.

If we own the pumping rights, we can also take steps to capture more rainwater and reclaim used water and send them into the aquifer. The more water it has, the more we will be allowed to use.

Currently, our wells provide about 60% of Claremont's water. If we owned the system, we would buy the rest that we need from providers such as Three Valleys Municipal Water District, just like GSW does.

How did the city's appraiser determine the "fair market value"?

A:

The process is complicated and there is a lot of information in the feasibility study posted on the city website, but the short answer is that they gathered all the information available about the Claremont part of GSW, including cost and profit numbers in American States Water annual reports, as well as other data, and then they determined a fair market value based on the income generated by the system.

The feasibility study was carried out by an accredited appraiser who is bound by law to develop an accurate and unbiased report. They included several graphs related to payback curves at different purchase prices. You can see these under the "Answers" tab above.

How did opponents of Measure W come up with that $100/mo increase?

A:

As far as can be determined, the GSW consultants simply chose a value of $200 million for the water system, without actually having any concrete basis for it,  and used that for calculations. 

Here are some reasons that an increase of $100/mo is wrong.

First, the actual value of the system, as determined by an accredited appraiser, is only $55 million.

Second, our GSW water bills include money that goes to pay for high executive salaries, shareholder profits, and corporate taxes. If the city owned the water system, all this money could be used to repay the revenue bonds, but the GSW consultant did not take this saving into account.

Third, whatever the cost of the system turns out to be (and it will be set by a court based on fair market value, not by GSW), not all households will pay equal shares of it. Since the repayment will be through the rates we set, those who use less water will have lower rates and therefore pay less than those who use more water.

Fourth, please note that up to a cost of $80 million, the current rates we pay to GSW would cover the bonds and we wouldn't see any increase in our bills due to the purchase.

 

What is a revenue bond and will we be able to sell them?

A:

From Wikipedia: "A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds, rather than from a tax."

Because water is considered an essential service which people must use, water revenue bonds are considered a very desirable and secure type of investment.

What about that replacement cost of $222 million I've heard?

A:

Although replacement cost is one of the accepted methods of determining fair market value (the other two are to base it on income or on comparable sales), this method consistently overestimates the value. This overestimation is recognized by the courts, so do not be worried by the GSW study saying the replacement value of the system would be $222 million.

The California Court of Appeal has concluded, "where construction cost substantially exceeds a figure which earnings will support, it should be given little weight in determining market value." (South Bay Irrigation District v. California American Water Company 61C.A 3d 994 [133 Cal.Rpt 166]). Based on earnings, the value is $55 million.

Do note that at $222 million, each Claremont connection would be worth about $19,000. At that rate, the 257,000 connections in the GSW system would be worth almost $5 billion, $4 billion more than the current market value of the whole of GSW. Clearly absurd.