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Steven Greenhut
Tapping Eminent Domain « Back to Story

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Commodity Control

Minerals, water, and energy are among the multitude of vital, natural assets that must be fairly shared in civilized communities and nations. One might say that they are gifts of God to each individual who own the outline of his own footprint. Except for the USA, nations seize those assets and create a system of sphincters that require fees and taxes to loosen the bowels of bureaucracy. Here, communities may own natural resources if they assert their natural rights of possession, but sadly most would rather pay their incomprehensible monthly utility bill than lock horns with local sphincter-tenders.

Long live the King, who occupies the collective unconsciousness of a nation of men and women who pretend to be free.

Jack Trimpey
Claremont's a strange little community on the Eastern edge of LA county, as the article states. The colleges there (they're collectively referred to as "the Claremont Colleges") are mostly of the typical lefty bent, but there's a public policy/politics book review site associated with one of the institutions which is decidedly conservative. And the community, while lefty, is also upper middle class, with expensive and beautiful old homes and quiet tree-lined streets, and a small village with no chain enterprises in it and a bunch of classy restaurants. There actually was a local scandal when a Starbucks snuck into this village some time ago.

So what's your solution? You seem to be saying that if the city takes over the water company, that water rates in the city will increase anyway. However, other cities nearby pay less for their water, though they may pay more for other services. When you have a utility with a monopoly on services like this, the salary, benefits, and so forth of all the participants in the agency are fair game, because they don't operate in the private sector, exactly: there's no competition and they have a captive market.

My first reaction was that if the water rates were too high, then someone needs to change the regulations so that the city has more jurisdiction over how much the water company can charge for its water, or how much they can increase the rates. If the company doesn't like the numbers the city generates, it can always go elsewhere and try to find another city willing to pay high rates for water everyone else gets cheaply.

Failing that, eminent domain would seem to be the only solution. As I understand it, the Public Utilities Commission adjudicates rate disputes, and tends to be a crony of the larger cities and the larger utilities. I think Claremont got on the wrong side of that arrangement.
Seems to me there is a city back east that is now in bankruptcy for the debt incurred on a sewage or water project that was mismanaged.
Santa Fe NM took over The Sangre de Cristo Water Company in the mid 90's in an effort to control growth. The city counselors promised the rates would not go up. They gave the city workers raises the next year paying for it with the higher rates they imposed with the city's higher water rates. Just an example. We now pay one if not the highest rates in the country.
I have quite a bit of experience with eminent domain and have done some utility work and offer the following comments:

1. First, the existing water company is certainly a public utility, a state regulated monopoly and franchise. The monopoly is granted in return for proof that the service provided will be safe, adequate etc. Water is a perfect example of why the the utility system works - you do not want competition in provision of water service because it invites corner cutting for competitive advantage, precisely what you don't want when it comes to provision of an essential service like water.

2. What you want is well funded, well regulated, consistent service - an open process under which everything is regulated, which is why utilities exist. In my state, and I am sure in Colifornia as well, rates are heavily regulated - in order to get a rate increase a utility must show it is necessary, reasonable, and profits re regulated by law as well - the utility gets what it is entitled to, no more, no less. In order to prove it is entitled to an increase, the utility has to open its books, which already should be open through the provision of reporting requirements. A utility must show rate base, must show how its rates are calculated, and, as noted its profits are limited by statute. It's why movies about utilities trying to hide pollution are silly - all a utility has to do is factor in cleanup costs in rate base and pass it on to the rate payer - the user. It's why closure of the Shorem plant in New York didn't affect the utility one bit - the extra costs were simply passed on. Thanks legisltators!

3. Public authorities when they provide water ans sewer have a history of being patronage mills - places where friends and relatives get on the government payroll at huge expense, and for corrupt purposes. This is one very good reason to keep the company private.

4. Competition in this area doesn't make sense, especially in the provision of water - it isn't as if a new company can put in more pipes and provide its own service. Competition is impossible for water. If a company isn't providing service adequately and cost effectively it should lose its franchise - but the way to do that is to make the case before the agency regulating the utility, not by eminent domain.

5. The use of eminent domain may be barred by something called the "prior public use" doctine - that is, that eminent domain cannot be used against entities providing a prior public use (or similar definitiion - I just don't have time to look it up). It's why one municipality can't acquire another using eminent domain.

6. As for Kelo, it was actually consistent with existing law, but it should have ad more limitations. But how else to deal with recalcitrant owners and to attract redevelopers? It's an area where there is always tension between the need to use emient domain for public use (on payment of just compentation) - it got way too much publicity in an area of law which used to be sleepy. (and I could go on for hours on this topic).

7. Also, I am not intimately familiar with California eminent domain law, but if eminent domain is used the municipality must get an appraisal based on fair market value, must serve that report on the utility. But presumably the muncipality will need the permission of whatever agency regulates utilities in California - how can it do this without doing that? The whole notion of using eminent domain to acquire a water utility is contrary to utility law, although presumably the muncipality got a legal opinion from its counsel before going forward. It's a bizarre way to do this, and does leave the town open to whatever a jury ultimately decides.

8. How does the town acquire the state franchise licenses - these are personal to the company, and can;t be condemned. in New Jersey you can't sell the stock of a utility without getting permission from the state - and I am certain California must have the same law.
So how can it possibly work here?

9. The whole notion of a municipality acquiring a water utility using eminent domain is..well..dopey. It doesn't fit in with the regulatory and statutory scheme in this area. It..can't be done, doesn;t make sense - how does the town prove it is fit to provide the service? The franchose requires permission - the whole notion is bizarre if you know the law.

10. The risk is high too - here is NJ we had a case where a state agency found out that the developer which it thought was on the hook to pay for acquisition of land acquired in condemnation couldn't pay the enormous increase as found by a jury. Look up Jersey City Redevelopment Authority v. Kerrigan. Once the process starts the municipality will not control how it ends and it rsiks a whatever a jury determines.

10. But you don't even get that far - the whole concept of using eminent domain in this context is wrong. Far better would be to seek to teminate the franchise rights of the water company by claiming that it is not providing adequate service. That requires the town go to the regulatory agency.

11. better yet, challenge the rate increase, or the whole rate structure - I am certain that in California the whole rate process is subject to public comment and review.

Sounds like this is a threat without meaning. I'll ask some of my collegues in this area to comment, but as I've said repeatedly the whole notion doesn't work here.

Longdrycreek Ranch - Texas February 08, 2013 at 3:20 AM
If the users want a significant rise in their monthly bills, I heartily recommend this step because the city will follow Calpers in its
strategy: Favor the few on the backs of all.
eminent domain
It is critical to ration water for SoCal so that rice farmers can be subsidized by zillions with free water. And here's a newsflash: that problem is 100 years old and will never never be fixed.
It's been a few years since water and its diversion has been written about. what happened to the area north of sacramento that was caught up on saving some sort of aquatic life and killing the field of 10's of thousands of acres of farmland.. I very sorry for not remembering the exact case..