Our View-Claremont should buy water company's local assets

(Published April 11, 2013-Opinion Editorial)

The time is right for the city of Claremont to buy out the private company that sells residents their water.

City leaders appear determined to acquire the Claremont assets of Golden State Water Co. even if it requires the use of eminent domain. That would be a costly, risky and unpleasant way to acquire Golden State's infrastructure and water rights in the city, to be used only as a last resort. It would be better for all concerned - Claremont residents and Golden State shareholders - if City Hall and Golden State were able to reach agreement on a price and to execute a "friendly" sale. So far, Golden State has said it has no intention of selling.

History is the best guide to the rationale for Claremont to purchase the investor-owned water company's assets. The city's water history teaches in at least two ways that the acquisition would make sense for residents.

1. Claremont and its similar-sized, next-door neighbor, La Verne, started out in about the same place in their water supplies. But Claremont let its system go private in the 1930s while La Verne continues to operate its own water department. And La Verne residents pay considerably less for their water than do Claremont residents - about $8 million a year less collectively, according to an analysis by the League of Women Voters of the Claremont Area.

2. On several previous occasions, city leaders have considered buying out the Claremont assets of Golden State and its predecessor company, Southern California Water Co., but never saw it through. Each time residents look back, it's clear they would have cheaper water today if the city had acted on one of those previous occasions. There's little reason to think Claremonters won't regret it in the future if the city doesn't acquire those water assets at this juncture.

Golden State has forced the issue with its recurrent requests for double-digit rate hikes. Sure, the cost of all water is rising, but not as fast as the company's rates in Claremont, which roughly doubled in five years. The company requested a 24 percent hike for 2013, which an administrative law judge proposed to trim to something between 11 percent and 13 percent. The California Public Utilities Commission, which regulates rates charged by Golden State, will consider a final ruling next week.

Claremonters suspect the rate hikes are fueled by big salaries for company managers and profits for shareholders. They object to Golden State's regional pricing that charges the same rate in Claremont - a city with wells that provide a percentage of its water at low cost - as in other cities with little or no groundwater supply.

Golden State denies that salaries or shareholder profits are big factors. The company says if Claremont ran the system, it would no longer benefit from the economies of scale and kinds of water expertise that Golden State provides the city.

Perhaps. But the logic put forth in the League of Women Voters analysis makes sense: Ignore all that back-and-forth, and simply compare the water rates in La Verne and Claremont.

Assuming that Claremont could operate its own water department as economically as La Verne does, but would leave water rates basically where they are now, the league calculates the city would realize the differential of about $8 million a year - or enough to finance a 30-year bond of roughly $150 million at today's low interest rates. Depending, of course, on a final purchase price, that could be more than enough for the city to acquire Golden State's assets and water rights with no rate increase for residents. (In contrast, in 2005 the League figured that residents could have to accept higher water rates for 18 years in order to pay down such a purchase; that return-on-investment calculus has changed radically since then because Golden State's rates have risen so much more steeply than La Verne's.)

It's hard to say whether Claremont's water infrastructure is in better or worse shape than La Verne's, and other unforeseen factors undoubtedly would affect the economics of Claremont's acquisition and operation of the water-delivery system.

Even so, a water buy-out now is the best bet for Claremont residents.