The Truth About Felton Flow Really

An Overview of the Successful Public Purchase of the Felton Water System

In 2008, at the request of Felton households, the San Lorenzo Valley Water District purchased the Felton water system from California American Water. American Water and other companies have tried to distort this successful public purchase into a warning against municipalization in an attempt to undermine other local buyout efforts.[1] Communities should not heed these corporate scare tactics. Felton has benefited from local, public control of its water services.

Felton Households Are Saving Hundreds of Dollars a Year With Public Control of Their Water Services

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Public ownership has saved Felton households hundreds of dollars a year on their total water costs. In 2011, a typical Felton household paid about $94 a month for water service — $49 a month for 8 ccfs of water[2] and an estimated $45 a month in special taxes to pay for the system purchase.[3],[A] Prior to the public purchase, California American Water sought rate increases that would have made Felton households pay an estimated $135 a month for the same amount of water in 2011.[4]

So, in total, compared to the company’s proposed rates, public ownership saved a Felton household about 30 percent or $500 on total annual water costs including taxes.

Felton Households Have Control Over Their Water Rates and Service

Unlike customers of privately owned systems, Felton households have a voice and ultimate control over their rates and services. If residents disapprove of the management and decisions of the water district, they can vote in a new board of directors to oversee the district.[5]

Public Financing Makes Public Water Less Expensive

Like many utilities, the San Lorenzo Valley Water District has increased rates in recent years to pay for system improvements, including necessary upgrades to Felton’s water system, but overall, rates have increased by much less than what California American Water planned.[6]

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This is partly because public financing is considerably less expensive than private financing. Public entities can issue low-interest municipal bonds to pay for improvement projects. The San Lorenzo Valley Water District’s long-term debt carries interest rates of between 2.4 percent and 5.2 percent.[7] The average cost of capital for investor owned water utilities is about 10 percent.[8]

Felton Households Overwhelmingly Supported a Public Purchase of Their Water System

During a special election in 2005, residents specifically authorized raising their taxes and issuing $11 million of bonds to purchase the system. The measure passed with three-quarters of voters in favor. As one water district official remarked, “It is hard to imagine how any stronger proof could be provided of the Felton community’s level of commitment and support for gaining local control of their water utility.”[9]

Water Corporations May Try to Inflate the Value of Their Water System.

In 2008, the water district bought the Felton system for $10.5 million in cash and the assumption of $2.9 million of the system’s existing debt, and the company “donated” 250 acres of watershed land.[10] The donation arrangement was presumably for corporate income tax purposes.

Felton Friends of Locally Owned Water (FLOW), the primary local-control proponent, said in 2004 that the acquisition would cost $10 million to $12 million,[11] and the water district’s official appraisal put the asset value at $7.6 million.[12] These projections were much closer to the final price than the company’s appraisal, which put the value at $25.6 million.[13] At one point in 2005, the company even claimed that the system was worth as much as $46 million[14] — nearly three-and-a-half times the final purchase price.

Other local-control movements can look to Felton as an example of why they should not become discouraged when water corporations refuse to negotiate a public purchase or demand excessive purchase prices.

Endnotes

[A] Those taxes apply to only Felton customers, and they expire in 2035. In 2012, the county refinanced the acquisition bonds at a lower interest rate, decreasing the special tax from $524 in 2012 to about $464 in 2013.

 

[1] American Water Company. [Fact sheet]. “Eminent Domain: Be Aware of the Facts.” 2009 at 2; Illinois-American Water Company. “Eminent Domain Case Studies Summary.” 2011 at 11; California American Water. “California American Water Monterey District.” Presentation to Monterey Peninsula Water Management District. August 15, 2011 at 16 to 21; Martin, Elisabeth. “Water debate focuses on public vs. private.” The Naperville Sun (IL). April 28, 2010; Sprowls, Robert. Golden State Water Company. “F.L.O.W. flawed, says Golden State CEO.” Ojai Valley News.September 29, 2011; Sprowls, Robert. Golden State Water Company. Letter. September 14, 2011.

[2] San Lorenzo Valley Water District. “Water and Wastewater Charges Study.” March 2013 at 1-3 to 1-4.

[3] Mueller, Jim. San Lorenzo Valley Water District. Testimony at the Monterey Water Forum. February 28, 2011 at  15 and 22.

[4] (Includes the surcharge to repay the California Safe Drinking Water Bond Act loan. The water district assumed the loan upon purchasing the system but eliminated the surcharge.) California Public Utilities Commission. “Opinion Resolving General Rate Cases.” Decision 06-11-050. November 30, 2006 at Appendix B; California-American Water Company. “Compliance Filing.” California Public Utilities Commission. A.08-01-022. March 24, 2008 at Exhibit A.

[5] California Constitution. Article 13D §6(a)(2); Mueller, James A. San Lorenzo Valley Water District. (Memorandum). “Procedures for Proposition 218 property related fees and charges.” February 12, 2007.

[6] San Lorenzo Valley Water District. “Water and Wastewater Charges Study.” March 2013 at 1-3 to 1-4; California Public Utilities Commission. “Opinion Resolving General Rate Case.” Decision 06-11-050. November 30, 2006 at attachment 2, Appendix B and Appendix C; California-American Water Company. “Compliance Filing.” (A.08-01-022). March 24, 2008 at Exhibit A; Mueller, Jim. San Lorenzo Valley Water District. Testimony at the Monterey Water Forum. February 28, 2011 at  15; “Felton homeowners to save $60 on property taxes; officials close deal on 3.4 percentn bond interest rate.” Santa Cruz Sentinel. November 23, 2012.

[7] San Lorenzo Valley Water District. “Financial Statements and Supplementary Information June 30, 2012 and 2011.” April 15, 2013 at 25 to 26.

[8] Mueller, James A. and Jeffrey M. Oderman. San Lorenzo Valley Water District. (Memorandum). “February 8, 2007, Hearing to Consider Adoption of Resolution of Necessity Authorizing Condemnation of California American Water Company’s Property in its Felton Service Area.” February 5, 2007 at 11.

[9] Ibid. at 5.

[10]American Water. [Press release]. “California American Water completes transfer of utility assets to San Lorenzo Valley Water District.” September 5, 2008.

[11] Gumz, Jondi. “San Lorenzo Valley Newsmaker: The CalAm water fight.” Santa Cruz Sentinel. December 26, 2004.

[12] Mueller, James A. San Lorenzo Valley Water District. (Memorandum). “California American Water Settlement Agreement.” May 30, 2008 at 1.

[13] Ibid. at 2.

[14] Mauriello, Susan A., Santa Cruz County. (Memorandum). “Resolutions of Intention – to Establish a Community Facilities District and to Incur Bonded Indebtedness to Acquire the Private Water System Which Serves the Felton Area.” March 10, 2005 at 8.

 

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