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


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.

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