PUBLIC TAKEOVER EFFORT SHOULD BE FAVORED THIS TIME
For much of my journalism career, one of my roles was to offer advice in the form of editorials but it was more of an exercise than a meaningful attempt to get anyone to act a certain way. I considered it a success if anyone read the whole piece and gave it any thought.
The advice I am about to give is different. For one thing, the intended audience is much smaller. It is for the people who make decisions on behalf of California American Water Co., the principal purveyor of water to the Monterey Peninsula. And it is meant to be persuasive and not just informative.
So here goes.
Cal Am, it is time to sell.
For the benefit of your company, your shareholders and the people of the Monterey Peninsula, it is time for you to sit down at the bargaining table and try to work out a fair price for your highly successful and equally controversial enterprise. Coming to terms with the community, without a protracted takeover process, will save you money. It will maximize the return to your shareholders and that, after all, is what you are all about.
So why am I saying this? And why now?
It’s partly because I went to a forum Monday night in Monterey in which the leadership of Public Water Now sketched the basics of the group’s upcoming effort to convert Cal Am from a privately owned, profit-taking business to a publicly owned, public-benefit operation. There were about 140 people there and, as far as I could tell, none of them was from Cal Am. If there had been, I suspect they’d be writing a memo to their bosses making pretty much the same argument I’m making here.
A key argument against a public takeover effort will be that it has been tried before, most recently four years ago, and it failed then. Don’t be fooled. Although Cal Am outspent the public takeover forces 20-1, the margin of victory, was 55-45, closer than anyone expected. If this thing goes to the ballot again, you can expect the numbers to be reversed.
Since the 2013 vote on what was called Measure O, the rates Cal Am charges its customers have risen dramatically, more than doubling in many cases, and they are poised to keep going up, dramatically, for as long as the company owns the water operation. A key argument against Measure O was that a public takeover wouldn’t be cost effective. Cal Am has crippled that argument by squeezing every ounce of profit out of its customers.
The last straw for many Peninsula residents was the company’s successful effort to raise rates to make up for money it didn’t make while the community was working hard to conserve water because of drought. Cal Am wasn’t alone in this extraction. Many publicly owned water systems in the state did the same thing, but they weren’t dealing with such expensive water.
Here’s more. The 140 people at the meeting Monday night weren’t a bunch of fuzzy-headed activists. There were past and present members of Peninsula city councils and the water management district board. There were lawyers and retired CEOs. This wasn’t a bunch of twenty-somethings. This was a bunch of sixty-somethings, people who know a little something about elections. Many of them stopped to make campaign contributions on their way out.
Also in the crowd were numerous people who were active in last year’s Measure Z campaign. That was the successful measure to ban fracking in Monterey County. Exxon and Mobil made like Cal Am and piled big money into the fight to defeat the measure. By the time it was over, they had spent more than $5 million on slick and tricky advertising that twisted the measure’s intent. In the end, Measure Z passed with more than 55 percent of the vote, a result that should scare the heck out of Cal Am’s accountants.
One of the speakers Monday night was the woman who ran the Measure Z campaign and the similar campaign that accomplished the same goals in San Benito County. She knows how to run a grassroots campaign, and so do many others who were in the room.
The people who ran the Measure O campaign were there Monday night, of course. The ringleader is Public Water Now’s George Riley, who knows almost as much about water as Cal Am. After Measure O went down to defeat, Riley didn’t walk away to lick his wounds. He dug into water issues. He continued studying Cal Am and he studied the campaign it ran against Measure O. It is safe to say he learned a lot in four years.
Four years ago, the focus of Cal Am’s fight against Measure O was the company’s desalination project, its complex and expensive answer to the Peninsula’s chronic water shortage. Cal Am campaign ads hit hard on the theme that a public takeover would delay the desalination project, which, the advertising assured us, was looming just over the horizon.
Four years later, the desalination venture has added untold millions of dollars to the future financial burden imposed on Cal Am’s customers, but groundbreaking is no closer.The project has been stalled by technical issues and conflict-of-interest concerns, perhaps even by lack of will on the part of Cal Am. At the moment its product is something it pumps for free from the Carmel River. Even though state utility rules guarantee that it will make money in the process, getting a desal plant built is a difficult and expensive task. Critical issues, such as water rights and basic pumping technology, remain unsettled.
At the same time, alternative solutions to the Peninsula’s water shortage have moved ahead, including a plan for an ambitious water recycling project that just last week received approval for the bulk of its financing plan. That is something Cal Am’s desalination planners can only dream of.
What that means is that the need for a large and expensive desalination plant is weakening. As it stands, Cal Am looks to charge its customers hundreds of millions of dollars to treat much more water than the Peninsula needs, water that likely would be used to create subdivisions for which there is no demand. No wonder political support for Cal Am is drying up.
Cal Am officials likely have noticed the uptick in letters to the editor critical of Cal Am and its ridiculous water rates. Those letters are from actual bill-paying customers, not Public Water Now activists. The issue of Cal Am rates is not just something for Public Water Now to turn into a slogan. Real people are really upset with the cost of water and don’t like it one bit that the cost here is about as high as it is anywhere.
A lot has changed in four years. When Measure O was on the ballot, the Peninsula mayor’s water advisory board played a key role in urging its defeat. The makeup of that board has changed. Most notably, former Carmel Mayor Jason Burnett is out of office and out of power. It was Burnett who coalesced the mayoral opposition to Measure O and who coordinated strategies with the Peninsula business community’s support for Cal Am. For elected officials, supporting Cal Am politically is far riskier now than was then.
As Riley pointed out Monday, the makeup of the water management district board has changed as well. That’s important because the district would become the initial operator of the water system once Cal Am was removed. Former Sand City Mayor David Pendergrass is gone from the district board, along with his unflinching support for Cal Am. New county Supervisor Mary Adams is going onto the board, bringing her brand of quiet progressivism with her.
If the ballot measure proceeds, Cal Am officials will spend millions fighting it while telling the shareholders that they are protecting the investment. Then, when the measure prevails, Cal Am will spend millions in litigation, fighting the election results initially and then watching as platoons of $500 per hour lawyers negotiate over the public purchase price of the system. In the end, a court, not Cal Am, will decide on the purchase price.
Cal Am officials on the Peninsula have insisted for years that their system here is barely if at all profitable, yet they have made it clear that they will fight to keep it. If anyone knows any Cal Am shareholders, you should send them this piece and encourage them to ask the company whether this fight really makes sense. Doesn’t it make more sense to start negotiating the price now?
It is time for the company to recognize that the tide has turned. By working every angle to squeeze maximum profit out of every aspect of the operation, they have invited a takeover by a publicly operated management structure intent on public service rather than rate of return.
I don’t mean to suggest that the takeover effort is a slam dunk if Cal Am resists. It will require tremendous energy and effort. But by every indication, there is an ample supply of energy and will and a diminishing set of reasons to keep Cal Am around.
So, Cal Am, if you’re thinking like the good corporate citizen you claim to be, you should conclude that it was nice while it lasted but it’s time to move on. And even if you’re thinking like the calculating enterprise that you really are, you should realize that sticking around means throwing lots of good money into a pot you can’t win. To steal a line from the anti-Measure O campaign, it’s a risk you can’t afford.