Public will have voice in new utility, town lawyer says

Oct. 25--SAN BERNARDINO -- Exorbitant water bills, earthquake-prone reservoir tanks, a lack of public input in setting rates and a corporation from Canada not operating transparently.

These were just some of the reasons that justify Apple Valley taking over its largest supplier of water, Liberty Utilities, a lawyer for the town argued on Thursday.

Opening arguments continued today in Superior Court Judge Donald Alvarez's courtroom, with Best Best & Krieger attorney Kendall MacVey outlining his client's position in the eminent domain suit.

If Alvarez rules in Apple Valley's favor, the decision would give the municipality local control of the water system.

"Fundamentally, it means there's going to be a difference between: 'Are we going to have a system that is accountable to the people it serves at cost or one that's accountable to executives and investors in Canada...at cost-plus?'" MacVey said.

The Canadian company MacVey referred to is Liberty's parent, Algonquin Power & Utilities Corporation, or APUC, based in Ontario. He suggested evidence in the trial would show APUC was focused more on profit and earnings than its customers.

According to MacVey, the parent company charged about $4.28 million for providing services and capital to Liberty and its affiliates in 2018, charges that weren't clarified for he and his associates.

Also unexplained are various surcharges on water bills which increase the bi-monthly rate significantly, MacVey said.

He presented several studies from his experts indicating Liberty "might be the highest in the Inland Empire" in its monthly average rate. One ranked the utility at No. 2 at $71.64 in Nov. 2015. The average of 2t9 other providers surveyed was $49.68.

Liberty's attorney, George Soneff, said on Wednesday that Liberty's water bills had increased only about $5 since 2009, and if adjusted for inflation had actually decreased 9.3%.

He cited a state auditor's report that suggested neighboring jurisdictions, such as Victorville and Hesperia, had lower bills due to different reasons: Victorville, because the city hadn't paid for its water system's upkeep in previous years, and Hesperia, because it had subsidized its water district, according to the report.

MacVey also characterized rate oversight by the state's regulatory board on privately-owned utilities, the California Public Utilities Commission, as being "insufficient."

He argued that Apple Valley is seemingly shut out of meetings when Liberty requests a change in its rates, which occurs every three years, with the commission.

MacVey said one of the benefits of Apple Valley acquiring the water system will be the setting of rates subject to Proposition 218, instead of by a commission, allowing the public to have greater input.

The amendment generally limits a government's ability to impose certain taxes. Some taxes are subject to an approval by the voters.

Apple Valley was sued twice for alleged Proposition 218 violations related to its sewer and trash service, lawsuits which Soneff had mentioned earlier.

MacVey emphasized the settlements in those cases, in which the town admitted no wrongdoing, have no bearing on how it would act if it acquired the water system.

Local control would instead lead to "clean" water bills with no surcharges and a stabilization of rates, he said.

"Rate stabilization is basically saying rates are going to be lower than they would be under investor ownership, under the current ownership," he said. Soneff argued Wednesday that due to the nearly $150 million revenue bond debt the town will issue in the acquisition, higher rates would likely occur.

The town's attorney also equated local control with greater safety for Apple Valley's residents.

According to MacVey, his firm's expert performed a three-day inspection of Liberty's water system. The expert, Craig Close, discovered 9 out of 10 water reservoir tanks to be "seismically unsafe," MacVey said.

Pictures of tanks perched above some homes had no concrete foundation, he said.

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

Soneff had earlier disputed the town's negative characterization of the water system. He admitted that it was aging but said the town had never indicated prior concern about any deficiencies until this year.

He cited both an earlier appraisal made by the town and its November 2015 environmental impact report proposing no changes to water infrastructure.

Martin Estacio may be reached at [email protected] or at 760-955-5358. Follow him on Twitter @DP_mestacio.

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