Town of Apple Valley files formal condemnation action to acquire AVR (January 7, 2016)

The Town of Apple Valley today (Thursday, Jan. 7) filed formal condemnation action to acquire the town’s privately held water system after years of excessive rate increases, surcharges and corporate decisions that have boosted profits at the expense of ratepayers.

The action, filed in San Bernardino County Superior Court, follows longstanding public concern about Apple Valley Ranchos Water Company’s monopoly hold on water service in the community.

Since 2002, AVR’s corporate owners raised rates by more than 65 percent, and in November, instituted yet another increase that will raise water costs for the average household by 26.58 percent. That same month, the Town Council approved resolutions of necessity authorizing eminent domain action after the Carlyle Group, owners of AVR, rejected the Town’s $50.3 million offer of just compensation for the water system.

Acquisition of AVR will give the Apple Valley community control over its water future instead of having in controlled by out-of-state and out-of-county corporate executives dedicated to maximizing corporate profits, the complaint states.

Other benefits include:

  • Providing public say over water rates and surcharges in keeping with the requirements of Proposition 218.
  • Providing transparency by having important water decisions made in open public forums instead of behind closed doors.
  • Stabilizing rates by eliminating: rates of return and profit; forced subsidization of failed water systems; allocation of corporate overhead relating to geographic locales hundreds of miles away; and shareholder goals to position the sale of the Water System for future financial gains.

The latter references AVR’s 2015 acquisition of the financially troubled Yermo Water Co. as well as Carlyle’s decision to sell its water interests to a Canadian company, Algonquin Power & Utilities Corporation. Both underscore the skewed economics that incentivize private water systems to pad profits by over-investing in imprudent projects that become part of their rate base, then turn around and sell off the company for far more than they bought it for.

The eminent domain action also notes that AVR threatened to sue the Town if it tried to provide the community with recycled water treated at a multimillion-dollar facility Apple Valley is building in partnership with the Victor Valley Wastewater Reclamation Authority. Because AVR does not provide recycled water and has no plans to build a reclamation facility, the threat essentially prevents Apple Valley from meeting an important legislative goal of the State.

The owners of our water system left us no choice but to pursue this action, said Mayor Barb Stanton. The Apple Valley Water System does not represent free enterprise in the way one normally thinks of it. It is a monopoly, granted by the government and which, with the help of the California Public Utilities Commission, determines how much you will pay and how much profit it will make. As a customer, you aren’t given a choice — or a say.

Stanton said that detailed financial analysis has shown that eliminating corporate overhead, property taxes and other costs will more than pay off the debt service of acquisition, leaving additional money for infrastructure improvements, system expansion and possibly rate reductions.

Scientific polling has shown that 70 percent of AVR ratepayers support acquisition by the Town.