Evaluating the Town of Apple Valley’s eminent domain strategy (November 8, 2019)

As reported elsewhere, I observed one day of the Town of Apple Valley’s eminent domain trial on Thursday, October 7th. My understanding of this process is that the Town needs to show at least one compelling reason why they should be allowed to seize the water company against the wishes of current owner Liberty Utilities. From what I saw through the admittedly narrow window of one day of trial, the impression is that the Town is nowhere even close to meeting its burden of proof.

The Town’s approach seemed to boil down to a few key aspects:

  • If they had all the documents used in the operations and maintenance department, they could step in and run things as well as Liberty Utilities does.
  • If all the current employees stay with the utility after the takeover, operations will continue as normal.
  • Liberty Utilities has not upgraded some of the infrastructure, making them bad owners.
  • Liberty Utilities is not maintaining some of the infrastructure, making them bad operators.
  • There is such a groundswell of demand for this takeover that the town council was compelled to act.

Let’s look at each of these in turn.

O&M documents

During the cross-examination of Carol Thomas-Keefer, who supervises operations and maintenance for Liberty Utilities, the Town’s attorney seemed to be probing for information on the location of all the documents needed to operate and maintain the system. This implies that the Town has no independent ability to do so, especially given that the panoply of employees they once falsely claimed would be able to run the water utilities have all left. There is no one with the possible exception of Town Manager Doug Robertson with sufficient water utility experience to do anything substantive in terms of running a water utility.

Although the Town’s attorney was dismissive of some aspects of Liberty Utilities’ O&M documentation, the fact remains that Liberty Utilities not only delivers high-quality water but also has a flawless record with no water quality infractions. If nothing else, Liberty Utilities knows how to run a water system. Because the Town doesn’t, it cannot ensure that there will not be water-quality problems in the future.

Conclusion: If the Town is relying on Liberty Utilities to supply all the documents and procedures the Town will need to operate the utility, what is the benefit of the takeover? Why pay hundreds of millions of dollars to keep things the same, let alone with the risk that water quality could get worse? The Town has not met the burden of proof here.

Employees

If all the employees stay, there is at least the possibility that operations and maintenance will continue to function effectively. There would still be one major change, though, and that is the conversion of Liberty’s private-company employees into the Town’s government employees at higher pay rates and with more expensive benefit packages. Because payroll costs are typically one of the largest expenses for any endeavor, increasing those costs is going to make it difficult to impossible for the Town to make good on its promise to stabilize water rates, let alone lower them.

To the extent that employees do not stay with the company after the transfer, there will be a discontinuity in operations and maintenance, which is not a good thing.

Conclusion: The Town has not met the burden of proof here.

Facilities upgrades

The Town’s attorney showed photos of reservoirs sited on gravel pads, piping wrapped with thermal tape to prevent freezing, wellheads that were exposed to the elements, etc.

The implication seemed to be that Liberty Utilities should have replaced each of these reservoirs, upgraded the gravel pads to concrete, and built structures around each wellhead (similarly to what Liberty Utilities did when constructing Well 35 on Apple Valley Road, presumably).

Left unsaid are two huge issues, both of which deal with the costs of such capital improvements.

First, because of the way the California Public Utilities Commission (CPUC) structures rates, rate increases are closely tied with the money spent on capital improvements. Had Liberty Utilities spent millions replacing and upgrading legacy equipment that is still working fine, that would have been reflected in water rates, and the Town claims that water rates are already way too high, even though they are on par with water rates in surrounding communities.

Second, since the onset of the eminent domain litigation, the Town has not agreed to allow Liberty Utilities to perform any capital improvements. All those mains replacement projects you see around town are being funded by Liberty Utilities with no guarantee that they will be allowed to recover their costs. In other words, the Town is critical of Liberty Utilities for not spending more money on capital improvements and driving rates higher. Remember, the Town has falsely claimed that the hundreds of thousands of dollars they have spent opposing Liberty Utilities’ rate changes have saved residents money (although they are also quick to say they have no idea how much money that is).

Conclusion: The Town is cynically trying to take Liberty Utilities to task for not undertaking projects that the Town would not support, and would, in fact, oppose in front of the CPUC using our tax dollars.

Facilities maintenance

The Town’s attorney showed photos of reservoirs and piping that looked to be ready for new coats of paint, reservoirs with rocks nearby (!), etc.

The implication seemed to be that Liberty Utilities should be much more proactive in its maintenance procedures. Not only were the samples shown pretty inconsequential to the operation of the system, but by descending to this level of nit-picking the Town has opened itself up to what could be a devastating rebuttal.

If the attorneys for Liberty Utilities so choose, they could spend days presenting photos and videos of evidence of incompetence, ineptitude, and slovenliness on the part of the Town staff in day-to-day operations and maintenance activities all over town, thanks to the tireless work of concerned citizen Kerry Henard.

Conclusion: The Town is cynically trying to take Liberty Utilities for not paying attention to the details, while its own staff ignores both the details and the big-picture items despite being literally until caught in the act in video recordings, and there are examples of town staff promising to address issues (or to say they are being addressed), only for it to turn out later that nothing was ever done.

A mandate of the people

The day I attended the proceedings, there were only two “civilian” observers: Diana Carloni and myself, members of Citizens for Government Accountability. We are concerned citizens who oppose the seizure of the water utility. We were told that on other days, other concerned citizens who oppose the eminent domain process have attended court sessions. To the best of my knowledge, no supporter of the Town’s efforts has attended any of these hearings, despite the Town advising residents on its Facebook page.

It is also worth remembering that council members such as Art Bishop claimed that every day while they were out and about, residents would approach them to ask when the Town was going to act to seize the water company. Aside from the triple absurdities of Bishop being out shopping every day for hours, him being recognized everywhere he goes, and residents approaching him to demand action, given the years and years over which these contacts supposedly happened, Bishop would have spoken at least once with just about every eligible voter in Town. Yet none of them now has enough interest in the subject to visit the court in person.

On the other hand, those who have opposed this action from the start have attended the proceedings. Somehow, concerned and informed citizens don’t register with Bishop or the others on the council.

Conclusion: There is no groundswell of support for the Town’s eminent domain action, and much if not all of the support we have seen in the past was “astroturf.”

Final thoughts

Despite spending millions on this litigation, misleading residents about the issues, and cynically creating strife and division among residents in order to gin up “popular” support for something the Town council wanted to do anyway, this effort will fail as concerned citizens have been warning all along, and residents of Apple Valley will be left holding the bag for attorney costs and much more. Worse, even if the Town should by some miracle win, we all still lose.