A closer look: Why Liberty Utilities’ arguments were favored in Apple Valley’s eminent domain lawsuit May 17, 2021

When lawyers for the Town of Apple Valley first presented their arguments in a lawsuit for taking over the water system owned by Liberty Utilities, they leveled a serious charge.

According to Kendall MacVey, an attorney with Best Best & Krieger, the firm’s expert who had conducted a three-day inspection of the system discovered nine out of 10 water reservoir tanks to be “seismically unsafe.”

Some were perched above homes with no concrete foundation, MacVey said in an October 2019 court hearing.

“If these tanks rupture, they will wipe out these homes. They will kill people,” he said.

But during the trial, a San Bernardino County Superior Court judge found that the expert had only performed a visual inspection of the tanks and that there was no evidence of testing “performed to support a showing of safety threats.”

Judge Donald Alvarez cited testimony from a witness for Liberty who said the tanks were “already equipped with some sort of earthquake protection.” Alvarez said “the evidence does not support the Town’s charge that Liberty’s water tanks ‘are potential time bombs waiting to explode.’”

In a tentative decision issued May 7, Alvarez ruled against Apple Valley in its attempt to take the water system from Liberty — the largest supplier in the town — by eminent domain.

He found that the utility company had successfully disproved the town’s arguments that acquisition was in the public’s interest and a necessity, rejecting contentions like the water system was unsafe.

Liberty also disproved that the “Town’s project is planned in the manner that will be most compatible with the greatest public good … (and) the use for which the Town seeks to take Liberty’s property is a more necessary public use than the use to which Liberty’s property is presently devoted,” Alvarez wrote.

Greg Sorenson, president of Liberty’s West region, said Friday that the company appreciated the judge’s tentative decision.

“The ruling confirms that Liberty has operated transparently and in the best interest of the community, and that the Town’s lawsuit will be dismissed,” he said.

The decision is not the final say on the matter, though.

According to town spokesperson Orlando Acevedo, Apple Valley has until June 1 to file and serve objections.

Liberty has until June 18 to file and serve a response to those objections, which will be considered during a June 23 hearing, Acevedo said.

Acevedo said the Town was “extremely disappointed with the decision.”

“The decision is neither reflective of the facts nor the law,” he said in email Friday.

Acevedo said the town will decide whether to file a notice of appeal once the decision is finalized.

At a council meeting on Tuesday, Town Attorney Thomas Rice said the Town Council authorized Town Manager Doug Robertson to “seek and obtain appellate counsel for the purposes of filing appeal” to Alvarez’s decision.

Noted economist finds water rates favorable

In the years leading up to the lawsuit and during the trial, town officials gave many reasons for wanting to take over the system, but one seems to stand out: Unusually high water bills.

In a 2017 town video, then-Mayor Scott Nassif said Apple Valley sought acquisition in response to “longstanding public concerns about the significant(ly) higher water rates compared to our neighboring communities.”

Nassif said he heard stories of residents struggling to pay their water bills and looking into moving out of Apple Valley.

“As mayor, these are things you never want to hear,” he said. “We had to act.”

Alvarez noted in his decision, however, that “the Town’s own evidence acknowledged it was unlikely water rates would be reduced even if the taking was successful.”

The judge cited an environmental impact report that stated reduction of rates would be an “unlikely event” and a staff report that read “the Town does not expect to be able to decrease rates.”

Acevedo said Friday that the town “will not comment on the specifics of the decision” due to the case’s ongoing status.

Alvarez found that Liberty’s expert, Harvard-educated economist Dr. Michael Hanemann, provided a “more thorough and accurate economic analysis” when he opined that Apple Valley ratepayers would be forced to pay higher water rates if the town assumed ownership.

Hanemann also compared Liberty’s water rates with those of Victorville, Hesperia, the Helendale Community Service District, and County Service Area 64, which covers Spring Valley Lake.

After factoring in average water consumption levels, capital spending and alternative sources of revenue such as government subsidies, Hanemann found that Liberty’s average residential monthly charges were less than the other systems.

Alvarez said the town’s water-rate analysis “did not control for any of the relevant differences between systems.”

“Making such adjustments is an appropriate step in seeking to compare apples-to-apples data,” Alvarez wrote.

According to the decision, evidence also showed residential water bills in Apple Valley had decreased by almost 7% from 2009 through 2019, despite the Town’s contention of exorbitant rate increases.

Town ownership viewed as an ‘experiment’

In one of the ruling’s more striking moments, Alvarez said allowing Apple Valley to acquire the system would present “potential risks to public health and safety.”

Evidence presented during the trial showed that the Apple Valley Water System had zero water quality violations over the past 30 years.

Alvarez attributed this record to the employees who operate the system. On the other hand, a town official testified that there was “no one at the Town competent to operate a water system,” according to the decision.

Although Apple Valley’s plan involved hiring Liberty’s current staff, Alvarez said it “failed to present evidence of even a single Liberty employee who had expressed a willingness to become an employee of the Town.”

Alvarez said the evidence indicated Liberty employees were disinclined likely due to delayed retirement benefits and the possible cutting of salaries.

The judge also found that there was a risk that the town would not keep up with capital investments to the infrastructure if it acquired the system, which would lead to degradation.

“If no one could run the system better, acquisition by the Town would constitute an experiment posing a risk to public health, safety, and the continued effective system operation by a long-term work force,” Alvarez said in his decision. “The public interest and necessity do not appear to require taking the water system that Liberty has expertly operated and maintained to see whether the Town can do the same.”

Source: Martin Estacio, Daily Press