The Fight for Public Water in Felton, California
After a six-year struggle, the community of Felton, Calif., successfully wrested control of their water from the clutches of a giant corporation in 2008.
At the request of Felton residents, the San Lorenzo Valley Water District purchased the Felton water system from California American Water, called Cal-Am, which is a subsidiary of American Water.
In May 2008, less than a week before an eminent domain trial to decide the value of the water system, the announcement came that the water district would pay Cal-Am $10.5 million in cash and assume $2.9 million in debt for the system. Jim Mosher, who heads up the legal committee for Felton FLOW (i.e., Friends of Locally Owned Water), said that Cal-Am decided to settle the eminent domain suit to avoid a jury trial.
“This is a great victory for the citizens of Felton and should inspire other communities to challenge private water utilities that are extorting huge, unjustified rate increases and failing to protect sensitive watershed properties,” Mosher said. “The SLV Water District has done an excellent job representing us and we look forward to having them manage the Felton water system.”
In addition, the agreement states that Cal-Am would “donate” 250 acres of forested watershed land to write off its taxes. Mosher, however, questioned whether the land transfer is a donation, since it appeared to be an integral part of the deal and the price.
- Felton FLOW scores another victory (blog; July 5, 2006)
- Water Activists Slay Corporate Behemoth (press release; June 2, 2008)
In 2001, American Water purchased Felton’s water system, which has been privately owned since the late 1800s, as part of its larger acquisition of Citizen’s Utilities. Shortly after that, German giant RWE gobbled up American Water, the largest investor owned water utility in the United States.
The trouble started in November 2002 when Cal-Am ignited furor in the Felton community, nestled amongst coastal redwood trees, with a 74 percent rate hike. In response, the Friends of Locally Owned Water was born and flew into action. FLOW fought to reduce the amount of the rate hike, urged Santa Cruz County to create a public agency to control the water system and opposed the company’s plan to merge its Felton and Monterey water districts.
The push for public water in Felton found its first success in July 2005 when FLOW spearheaded passage of Measure W, despite Cal-Am’s deep-pocketed opposition. Residents overwhelmingly — by a 3-to-1 margin — approved issuing $11 million in bonds, explicitly agreed to higher taxes and authorized the SLV Water District to use the bond proceeds to buy their water system.
The district offered California American $7.6 million, its appraised value, but Cal-Am refused. Company officials stated, flatly, that the system was not for sale at any price and said they would oppose all public acquisition efforts, perhaps in fear that Felton would inspire other communities and start a domino effect of citizens taking control of their water resources.
Four months later, in November 2005, RWE announced it would sell its stake in American Water, including the Cal-Am division. The reason was supposedly to focus on European energy investments.
But that likely was just an excuse. Leaked minutes from an RWE board meeting reveal that the German company was taken aback at the difficulties of turning a profit in the American water market, and that its initial estimates of efficiencies and rate increases were overly optimistic. It also cited “considerable political resistance to privatization of the water sector” as a reason to exit the U.S. water market.
Indeed, after more than two years of delays because of investors running scared, the company finally managed to offer up shares of American Water in an April 2008 initial public offering. The results were disappointing: “RWE planned to offer shares for $24-$26, but at the last minute dropped the offering price to $22-$23. That still wasn’t enough of a cut and on opening day shares sold at $21.50 and the company only sold 36% of its shares. As stock analyst Bill Simpson summed it up: ‘… this IPO is nothing more than an exit strategy for parent company RWE.’”
Meanwhile, back in Felton, there was no backing down. Its purchase offer brushed off, the community turned to eminent domain to force a buyout. Cal-Am responded by doing all it could to make the system seem more expensive. Its appraisal valued the system at $25 million — far more than the $7.6 million that the district’s appraisal determined the system to be worth. This was based in large part on Cal-Am’s assertion that the 250 acres of watershed land should be valued based on the revenue that would be generated from selling the timber and the land for commercial development — a position the community hotly disputed.
Eminent domain proceedings in California have two parts: (1) the “right to take” hearing to determine whether the purchase serves the public interest, and (2) a “valuation” trial in which a jury decides how much the property is worth. In both cases, Cal-Am’s legal tactics caused delays and increased expenses for the SLV Water District. Finally, the company conceded the public’s right to take the water system and settled the acquisition price without a trial.
“We fought off every one of Cal-Am’s tactics to derail the process,” Mosher said. “But in the end, our position was completely vindicated.”
In their successful six-year crusade for their water, the good people of Felton have helped lead the way for numerous other U.S. communities fighting the forces of corporate control of water.
- Visit the website of Felton Flow (external link)
- Faulty Pipes: Why Public Funding — Not Privatization — Is the Answer for U.S. Water Systems(report; September 2008)
- The Future of American Water: The Story of RWE and the Politics of Privatization (report; October 2008)
- Municipalization Guide: How U.S. Communities Can Secure Local Public Control of Privately Owned Water and Sewer Systems (report; July 2012)